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MANHATTAN BRIDGE CAPITAL, INC - Quarter Report: 2023 September (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2023

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. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer   Smaller reporting company
Emerging growth company    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

 

As of October 24, 2023, the Issuer had a total of 11,449,585 common shares, $.001 par value per share, outstanding.

 

 

 

 

 

 

MANHATTAN BRIDGE CAPITAL, INC.

 

TABLE OF CONTENTS

 

    Page Number
     
Part I FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements (unaudited) 2
     
  Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 2
     
  Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 3
     
  Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 4
     
  Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 5
     
  Notes to Consolidated Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 10
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
     
Item 4. Controls and Procedures 13
     
Part II OTHER INFORMATION  
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
     
Item 6. Exhibits 14
     
SIGNATURES 15
     
EXHIBITS  

 

 

 

 

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; (ix) our ability to recover additional amounts relating to a single foreclosure action; and (x) an increase in interest rates may impact our profitability. 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, 2022. 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, 2023   December 31, 2022 
 

(unaudited)

  

(audited)

 
Assets        
Loans receivable  $70,781,039   $74,483,463 
Interest receivable on loans   1,349,374    1,363,502 
Cash   133,147    103,540 
Other assets   100,030    59,566 
Operating lease right-of-use asset, net   221,079    262,222 
Deferred financing costs, net   30,765    7,708 
Total assets  $72,615,434   $76,280,001 
           
Liabilities and Stockholders’ Equity          
Liabilities:          
Line of credit  $21,433,094   $24,994,234 
Senior secured notes (net of deferred financing costs of $190,842 and $247,155, respectively)   5,809,158    5,752,845 
Deferred origination fees   670,295    669,128 
Accounts payable and accrued expenses   236,186    289,868 
Operating lease liability   233,978    273,485 
Dividends payable   1,288,753    1,436,868 
Total liabilities   29,671,464    33,416,428 
           
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; 11,757,058 issued; 11,457,085 and 11,494,945 outstanding, respectively   11,757    11,757 
Additional paid-in capital   45,545,609    45,535,811 
Treasury stock, at cost – 299,973 and 262,113 shares, respectively   (984,630)   (798,939)
Accumulated deficit   (1,628,766)   (1,885,056)
Total stockholders’ equity   42,943,970    42,863,573 
           
Total liabilities and stockholders’ equity  $72,615,434   $76,280,001 

 

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

 

2

 

 

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   2023   2022   2023   2022 
   Three Months
Ended September 30,
   Nine Months
Ended September 30,
 
   2023   2022   2023   2022 
Interest income from loans  $1,992,495   $1,677,670   $5,888,843   $4,933,767 
Origination fees   441,271    429,350    1,342,077    1,405,076 
Total revenue   2,433,766    2,107,020    7,230,920    6,338,843 
                     
Operating costs and expenses:                    
Interest and amortization of deferred financing costs   614,389    496,718    1,856,079    1,204,954 
Referral fees   361    625    1,652    3,945 
General and administrative expenses   377,192    377,436    1,274,267    1,125,162 
Total operating costs and expenses   991,942    874,779    3,131,998    2,334,061 
Income from operations   1,441,824    1,232,241    4,098,922    4,004,782 
Other income   4,500    4,500    29,380    13,500 
Income before income tax expense   1,446,324    1,236,741    4,128,302    4,018,282 
Income tax expense           (650)   (650)
Net income  $1,446,324   $1,236,741   $4,127,652   $4,017,632 
                     
Basic and diluted net income per common share outstanding:                    
—Basic  $0.13   $0.11   $0.36   $0.35 
—Diluted  $0.13   $0.11   $0.36   $0.35 
                     
Weighted average number of common shares outstanding                    
—Basic   11,461,052    11,494,945    11,477,133    11,494,945 
—Diluted   11,461,052    11,494,945    11,477,133    11,494,945 

 

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

 

3

 

 

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

 

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023

 

   Shares   Amount   in Capital   Shares   Cost   Deficit   Totals 
   Common Shares   Additional Paid   Treasury Shares   Accumulated     
   Shares   Amount   in Capital   Shares   Cost   Deficit   Totals 
Balance, July 1, 2023   11,757,058   $11,757   $45,542,343    295,473   $(963,745)  $(1,786,337)  $42,804,018 
Purchase of treasury shares                  4,500    (20,885)        (20,885)
Non-cash compensation             3,266                   3,266 
Dividends declared and payable                            (1,288,753)   (1,288,753)
Net income   -    -    -    -    -    1,446,324    1,446,324 
Balance, September 30, 2023   11,757,058   $11,757   $45,545,609    299,973   $(984,630)  $(1,628,766)  $42,943,970 

 

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022

 

   Common Shares   Additional Paid   Treasury Shares   Accumulated     
   Shares   Amount   in Capital   Shares   Cost   Deficit   Totals 
Balance, July 1, 2022   11,757,058   $11,757   $45,529,278    262,113   $(798,939)  $(1,442,167)  $43,299,929 
Non-cash compensation             3,266                   3,266 
Dividends declared and payable                            (1,436,868)   (1,436,868)
Net income   -    -    -    -    -    1,236,741    1,236,741 
Balance, September 30, 2022   11,757,058   $11,757   $45,532,544    262,113   $(798,939)  $(1,642,294)  $43,103,068 

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023

 

   Common Shares   Additional Paid   Treasury Shares   Accumulated     
   Shares   Amount   in Capital   Shares   Cost   Deficit   Totals 
Balance, January 1, 2023   11,757,058   $11,757   $45,535,811    262,113   $(798,939)  $(1,885,056)  $42,863,573 
Purchase of treasury shares                  37,860    (185,691)        (185,691)
Non-cash compensation             9,798                   9,798 
Dividends paid                            (2,582,609)   (2,582,609)
Dividends declared and payable                            (1,288,753)   (1,288,753)
Net income   -    -    -    -    -    4,127,652    4,127,652 
Balance, September 30, 2023   11,757,058   $11,757   $45,545,609    299,973   $(984,630)  $(1,628,766)  $42,943,970 

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022

 

   Common Shares   Additional Paid   Treasury Shares   Accumulated     
   Shares   Amount   in 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             9,798                   9,798 
Dividends paid                            (2,873,736)   (2,873,736)
Dividends declared and payable                            (1,436,868)   (1,436,868)
Net income   -    -    -    -    -    4,017,632    4,017,632 
Balance, September 30, 2022   11,757,058   $11,757   $45,532,544    262,113   $(798,939)  $(1,642,294)  $43,103,068 

 

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

 

4

 

 

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   2023   2022 
   Nine Months
Ended September 30,
 
   2023   2022 
Cash flows from operating activities:          
Net income  $4,127,652   $4,017,632 
Adjustments to reconcile net income to net cash provided by operating activities -          
Amortization of deferred financing costs   71,449    83,401 
Adjustment to operating lease right-of-use asset and liability   1,636    3,274 
Depreciation   3,001    1,598 
Non-cash compensation expense   9,798    9,798 
Changes in operating assets and liabilities:          
Interest receivable on loans   14,128    (176,746)
Other assets   (38,381)   (29,164)
Accounts payable and accrued expenses   (53,682)   47,890 
Deferred origination fees   1,167    61,645 
Net cash provided by operating activities   4,136,768    4,019,328 
           
Cash flows from investing activities:          
Issuance of short term loans   (40,810,565)   (49,241,679)
Collections received from loans   44,512,989    42,255,461 
Purchase of fixed assets   (5,085)   (1,893)
Net cash provided by (used in) investing activities   3,697,339    (6,988,111)
           
Cash flows from financing activities:          
(Repayment of) proceeds from line of credit, net   (3,561,140)   7,715,637 
Dividends paid   (4,019,478)   (4,310,604)
Purchase of treasury shares   (185,691)    
Deferred financing costs incurred   (38,191)   (35,819)
Net cash (used in) provided by financing activities   (7,804,500)   3,369,214 
           
Net increase in cash and restricted cash*   29,607    400,431 
Cash and restricted cash*, beginning of year   103,540    142,546 
Cash and restricted cash*, end of period  $133,147   $542,977 
           
Supplemental Cash Flow Information:          
Taxes paid during the period  $650   $650 
Interest paid during the period  $1,797,254   $1,036,338 
Operating leases paid during the period  $47,822   $47,703 
           
Supplemental Information – Noncash Information:          
Dividend declared and payable  $1,288,753   $1,436,868 

 

*At September 30, 2022, cash and restricted cash included $433,269 of restricted cash.

 

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

 

5

 

 

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023

(unaudited)

 

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, 2022 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 September 30, 2023, the Company was committed to $9,663,901 in construction loans that can be drawn by the borrowers when certain conditions are met.

 

At September 30, 2023, no entity had loans outstanding representing more than 10% of the total balance of the loans outstanding.

 

6

 

 

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, 2023 and December 31, 2022:

 

Performing loans  Developers-
Residential
   Developers-
Commercial
   Developers-
Mixed Use
   Total outstanding
loans
 
September 30, 2023  $60,397,039   $8,915,000   $1,469,000   $70,781,039 
December 31, 2022  $62,264,463   $9,300,000   $2,919,000   $74,483,463 

 

At September 30, 2023, the Company’s loans receivable consisted of loans in the amount of $36,790, $760,433, $2,660,250, $2,204,000 and $10,965,000, originally due or committed to lend to borrowers in 2016, 2019, 2020, 2021 and 2022, respectively. The loans receivable also includes loans in the amount of $15,803,000 originally due in the first nine months of 2023.

 

Generally, borrowers are paying their interest, and the Company receives a fee in connection with the extension of the loans. In all instances, except as described below, the borrower has either signed an extension agreement or are in the process of signing the extension. Accordingly, at September 30, 2023, no loan impairments exist and there are no provisions for impairments of loans or recoveries thereof.

 

During February 2023, the Company determined to, and sold, one of its loans receivable to a third-party investor at its face value of $485,000. Assaf Ran, the Company’s President and Chief Executive Officer, participated in such acquisition in the amount of $152,000. In addition, in June 2023, the Company filed a foreclosure lawsuit relating to one property, as a result of a deed transfer from the borrower to a buyer without the Company’s consent. In that instance, the buyer of a property on which the Company had a valid mortgage suffered a data breach which resulted in the failure of the buyer to remit the funds needed for the loan payoff. As a result, the Company filed the foreclosure lawsuit to assist the buyer in making a claim with its title insurer. On October 18, 2023, the Company received the payoff amount for the property, originally owed as of March 24, 2023. The Company is working to recover additional amounts incurred subsequent to the original payoff date, which includes additional interest, costs and legal fees.

 

Subsequent to the balance sheet date, $2,560,000 of the loans receivable at September 30, 2023 were paid off, including $2,150,000 originally due in or before 2022.

 

4. LINE OF CREDIT

 

The Company executed an Amended and Restated Credit and Security Agreement (as amended on January 31, 2023, 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, 2026, secured by assignments of mortgages and other collateral. The interest rates relating to the Webster Credit Line equal (i) the Secured Overnight Financing Rate (“SOFR”) plus a premium, which rate aggregated approximately 8.9%, including a 0.5% agency fee, as of September 30, 2023, or (ii) a Base Rate (as defined in the Amended and Restated Credit Agreement) plus 2.00% and a 0.5% agency fee, as chosen by the Company for each drawdown.

 

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. 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.

 

7

 

 

On January 31, 2023, the Company entered into another amendment, effective as of January 2, 2023, with respect to the Amended and Restated Credit Agreement with the Lenders and Mr. Ran, as guarantor, to (i) extend the maturity date of the credit line by three years to February 28, 2026; (ii) transition the applicable benchmark from LIBOR to SOFR and adjust the applicable margin with respect to Base Rate Loans and SOFR Loans; (iii) update the required calculation with respect to the fixed charge coverage ratio covenant; (iv) further increase the limit on individual loans and the concentration of any mortgagor (together with guarantors and other related entities and affiliates); and (v) eliminate the requirement to pledge additional mortgage loans as collateral for the credit line. In addition, the terms of the personal guaranty provided by Mr. Ran were amended such that the potential sums owed under such guaranty will not exceed the sum of $1,000,000 plus any costs relating to the enforcement of the personal guaranty.

 

The Company was in compliance with all covenants of the Webster Credit Line, as amended, as of September 30, 2023. At September 30, 2023, the outstanding amount under the Amended Credit Agreement was $21,433,094. The interest rate on the amount outstanding fluctuates daily. The rate, including a 0.5% agency fee, was approximately 8.9% as of September 30, 2023.

 

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 September 30, 2023.

 

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. As of September 30, 2023, each of Mr. Ran and Ms. Kao own an aggregate of $704,000 and $288,000, respectively, of our Notes.

 

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6. STOCKHOLDERS’ EQUITY

 

The Company adopted a share buy back program on April 11, 2023, for the repurchase of up to 100,000 of the Company’s common shares in the next twelve months. As of September 30, 2023, the Company has purchased an aggregate of 37,860 common shares under this repurchase program, at an aggregate cost of approximately $186,000.

 

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.

 

8. STOCK–BASED COMPENSATION

 

Stock based compensation expense recognized under ASC 718, “Compensation – Stock Compensation,” for each of the three-month periods ended September 30, 2023 and 2022 of $3,266, and for each of the nine month periods ended September 30, 2023 and 2022 of $9,798 represent 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 September 30, 2023, all 1,000,000 shares remain restricted, and the remaining unrecognized stock based compensation amounted to $38,105.

 

9. SUBSEQUENT EVENT

 

In accordance with the dividend declared by the Company’s Board of Directors on July 27, 2023, a cash dividend of $0.1125 per share in an aggregate amount of $1,288,753 was paid on October 16, 2023 to all shareholders of record on October 10, 2023.

 

********

 

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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 the Quarterly Report. 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 $40,000 to a maximum of $3.3 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) $3.5 million. Our loans typically have a maximum initial term of 12 months and bear interest at a fixed rate of 9% to 13% 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 our business in 2007, except as set forth below, we have never foreclosed on a property, although sometimes we have renewed or extended the term of a loan 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. In June 2023, we filed a foreclosure lawsuit relating to one property, as a result of a deed transfer from the borrower to a buyer without our consent. In that instance, the buyer of a property on which we had a valid mortgage suffered a data breach which resulted in the failure of the buyer to remit the funds needed for the loan payoff. As a result, we filed the foreclosure lawsuit to assist the buyer in making a claim with its title insurer. On October 18, 2023, we received the payoff amount for the property, originally owed as of March 24, 2023. We are working to recover additional amounts incurred subsequent to the original payoff date, which includes additional interest, costs and legal 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 and fund loans secured by first mortgages on residential and commercial real estate held for investment located in the New York metropolitan area, including New Jersey and Connecticut, and in Florida, and to carefully manage and service our portfolio in a manner designed to generate attractive risk-adjusted returns across a variety of market conditions and economic cycles. We believe that current market dynamics, specifically the demand/supply imbalance for relatively small real estate loans, presents opportunities for us to selectively originate high-quality first mortgage loans and we believe that these market conditions should persist for a number of years. 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 and ability to structure loans that address the needs of our 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 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 month period ended September 30, 2023 and 2022, the total amounts of $40,810,565 and $49,241,679, respectively, have been lent, offset by collections received from borrowers, under our commercial loans of $44,512,989 and $42,255,461, respectively.

 

At September 30, 2023, we were committed to $9,663,901 in construction loans that can be drawn by the borrowers when certain conditions are met.

 

To date, except as discussed above, none of the loans previously made have been non-collectable, although no assurances can be given that existing or future loans may not prove to be non-collectible or foreclosed 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.

 

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Results of Operations

 

Three months ended September 30, 2023 compared to three months ended September 30, 2022

 

Revenue

 

Total revenues for the three months ended September 30, 2023 were approximately $2,434,000 compared to approximately $2,107,000 for the three months ended September 30, 2022, an increase of $327,000 or 15.5%. The increase in revenue was due to higher interest rates charged on our commercial loans. For the three months ended September 30, 2023 and 2022, approximately $1,992,000 and $1,678,000, respectively, of our revenues were attributable to interest income on secured commercial loans that we offer to real estate investors, and approximately $441,000 and $429,000, 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, 2023 were approximately $614,000 compared to approximately $497,000 for the three months ended September 30, 2022, an increase of $117,000, or 23.5%. The increase is primarily attributable to the increase in interest expense due to higher interest rates relating to the use of the Webster Credit Line. (See Note 4 to the consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).

 

General and administrative expenses

 

General and administrative expenses for each of the three months ended September 30, 2023 and 2022 were approximately $377,000.

 

Net income

 

Net income for the three months ended September 30, 2023 was approximately $1,446,000 compared to approximately $1,237,000 for the three months September 30, 2022, an increase of $209,000, or 16.9%. This increase is primarily attributable to the increase in interest income from loans, partially offset by the increase in interest expense.

 

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022

 

Revenue

 

Total revenues for the nine months ended September 30, 2023 were approximately $7,231,000 compared to approximately $6,339,000 for the nine months ended September 30, 2022, an increase of $892,000, or 14.1%. The increase in revenue was due to higher interest rates charged on our commercial loans. For the nine months ended September 30, 2023 and 2022, revenues of approximately $5,889,000 and $4,934,000, respectively, were attributable to interest income on the secured commercial loans that we offer to real estate investors, and approximately $1,342,000 and $1,405,000, 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, 2023 were approximately $1,856,000 compared to approximately $1,205,000 for the nine months ended September 30, 2022, an increase of $651,000, or 54.0%. The increase is primarily attributable to the increase in interest expense due to higher interest rates relating to the use of the Webster Credit Line. (See Note 4 to the consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).

 

General and administrative expenses

 

General and administrative expenses for the nine months ended September 30, 2023 were approximately $1,274,000 compared to approximately $1,125,000 for the nine months ended September 30, 2022, an increase of $149,000, or 13.2%. The increase is primarily attributable to a special bonus to officers in 2023 for extending the Webster Credit Line, and increases in marketing, insurance, travel and meals expenses, partially offset by a decrease in advertising expense.

 

Net income

 

Net income for the nine months ended September 30, 2023 was approximately $4,128,000 compared to approximately $4,018,000 for the nine months ended September 30, 2022, an increase of $110,000, or 2.7%. This increase is primarily attributable to the increase in interest income from loans, partially offset by the increase in interest expense.

 

11

 

 

Liquidity and Capital Resources

 

At September 30, 2023, we had cash of approximately $133,000, compared to approximately $104,000 at December 31, 2022.

 

For the nine months ended September 30, 2023, net cash provided by operating activities was approximately $4,137,000, compared to approximately $4,019,000 for the nine months ended September 30, 2022. The increase in net cash provided by operating activities primarily resulted from the increase in net income and the decrease in interest receivable on loans, partially offset by the decrease in accounts payable and accrued expenses and deferred revenue.

 

For the nine months ended September 30, 2023, net cash provided by investing activities was approximately $3,697,000, compared to approximately $6,988,000 net cash used in investing activities for the nine months ended September 30, 2022. Net cash provided by investing activities for the nine months ended September 30, 2023 mainly consisted of the collection of our commercial loans of approximately $44,513,000, offset by the issuance of commercial loans of approximately $40,811,000. During the period ended September 30, 2022, net cash used in investing activities mainly consisted of the issuance of commercial loans of approximately $49,242,000, offset by the collection of our commercial loans of approximately $42,255,000.

 

For the nine months ended September 30, 2023, net cash used in financing activities was approximately $7,805,000, compared to approximately $3,369,000 net cash provided by financing activities for the nine months ended September 30, 2022. Net cash used in financing activities for the nine months ended September 30, 2023 reflects the repayment of the Webster Credit Line of approximately $3,561,000, dividend payments of approximately $4,019,000, purchase of treasury shares of approximately $186,000 and deferred financing costs of approximately $38,000. Net cash provided by financing activities for the nine months ended September 30, 2022 reflects the net proceeds from the Webster Credit Line of approximately $7,716,000, offset by dividend payments of approximately $4,311,000 and deferred financing costs of approximately $36,000.

 

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, 2026, secured by assignments of mortgages and other collateral. The interest rates relating to the Webster Credit Line equal (i) SOFR plus a premium, which rate aggregated approximately 8.9%, including a 0.5% agency fee, as of September 30, 2023, or (ii) a Base Rate (as defined in the Amended and Restated Credit Agreement) plus 2.00% and a 0.5% agency fee, as chosen by the Company for each drawdown.

 

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. 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.

 

On January 31, 2023, we entered into another amendment, effective as of January 2, 2023, with respect to the Amended and Restated Credit Agreement with the Lenders and Mr. Ran, as guarantor, to (i) extend the maturity date of the credit line by three years to February 28, 2026; (ii) transition the applicable benchmark from LIBOR to SOFR and adjust the applicable margin with respect to Base Rate Loans and SOFR Loans; (iii) update the required calculation with respect to the fixed charge coverage ratio covenant; (iv) further increase the limit on individual loans and the concentration of any mortgagor (together with guarantors and other related entities and affiliates); and (v) eliminate the requirement to pledge an additional mortgage loans as collateral for the credit line. In addition, the terms of the personal guaranty provided by Mr. Ran were amended such that the potential sums owed under such guaranty will not exceed the sum of $1,000,000 plus any costs relating to the enforcement of the personal guaranty.

 

12

 

 

We were in compliance with all covenants of the Webster Credit Line, as amended, as of September 30, 2023. At September 30, 2023, the outstanding amount under the Amended and Restated Credit Agreement was $21,433,094. The interest rate on the amount outstanding fluctuates daily. The rate, including a 0.5% agency fee, was approximately 8.9% as of September 30, 2023.

 

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 September 30, 2023.

 

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 April 11, 2023, 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 April 10, 2024. 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, 2023, we have purchased an aggregate of 37,860 common shares under this repurchase program, at an aggregate cost of approximately $186,000.

 

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. However, we expect our working capital requirements to increase over the next 12 months as we continue to strive for growth.

 

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, 2023 (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 and 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.

 

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(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, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II OTHER INFORMATION

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On April 11, 2023, 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 us to purchase any shares and expires on April 10, 2024. The authorization for the program is able to be terminated, increased or decreased by our Board of Directors in its discretion at any time.

 

As set forth in the table below, during the quarter ended September 30, 2023, we repurchased 4,500 of our common shares under the share buy back program at an aggregate cost of $20,885.

 

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, 2023   0   $    0    66,640 
August 1-31, 2023   2   $4.63    2    66,638 
September 1-30, 2023   4,498   $4.64    4,498    62,140 
Total   4,500   $4.64    4,500    62,140 

 

Item 6. EXHIBITS

 

Exhibit No.   Description
31.1   Chief Executive Officer Certification under Rule 13a-14
31.2   Chief Financial Officer Certification under Rule 13a-14
32.1*   Chief Executive Officer Certification pursuant to 18 U.S.C. section 1350
32.2*   Chief Financial Officer Certification pursuant to 18 U.S.C. section 1350
101.INS   XBRL Instance Document
101.CAL   Inline XBRL Taxonomy Extension Schema Document
101.SCH   Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document
104   Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).

 

 

* Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.

 

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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 24, 2023 By: /s/ Assaf Ran
    Assaf Ran, President and Chief Executive Officer
    (Principal Executive Officer)
     
Date: October 24, 2023 By: /s/ Vanessa Kao
    Vanessa Kao, Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

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