UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2019

 

or

 

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

 

For the transition period from _________________________ to _________________________

 

Commission File Number: 000-25991

 

MANHATTAN BRIDGE CAPITAL, INC.

(Exact name of registrant as specified in its charter)

 

New York   11-3474831
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

60 Cutter Mill Road, Great Neck, New York 11021

(Address of principal executive offices)

 

(516) 444-3400

(Registrant’s telephone number, including area code)

 

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common shares, par value $.001   LOAN   Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [  ] No

 

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

 

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

 

  Large accelerated filer [  ] Accelerated filer [  ]
         
  Non-accelerated filer [X] Smaller reporting company [X]
         
  Emerging growth company [  ]     

 

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

 

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

 

As of July 26, 2019, the Issuer had a total of 9,657,977 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 June 30, 2019 and December 31, 2018 2
     
  Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30, 2019 and 2018 3
     
  Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Month Periods Ended June 30, 2019 and 2018 4
     
  Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 2019 and 2018 5
     
  Notes to Consolidated Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
     
Item 4. Controls and Procedures 17
     
Part II OTHER INFORMATION  
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
     
Item 6. Exhibits 18
     
SIGNATURES 19
     
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 and to periodically obtain bridge loans from 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; and (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. 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, 2018. 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

 

   June 30, 2019   December 31, 2018 
   (unaudited)   (audited) 
Assets        
Loans receivable  $55,911,967   $54,836,127 
Interest receivable on loans   672,900    596,777 
Cash   127,169    203,682 
Cash - restricted       151,375 
Other assets   127,559    73,131 
Operating lease right-of-use asset, net   113,724     
Deferred financing costs   32,339    42,040 
Total assets  $56,985,658   $55,903,132 
           
Liabilities and Stockholders’ Equity          
Liabilities:          
Line of credit  $17,737,803   $16,622,147 
Senior secured notes (net of deferred financing costs of $509,956 and $547,499, respectively)   5,490,044    5,452,501 
Deferred origination fees   396,443    404,676 
Accounts payable and accrued expenses   122,789    183,716 
Operating lease liability   113,724     
Dividends payable       1,158,717 
Total liabilities   23,860,803    23,821,757 
           
Commitments and contingencies          
Stockholders’ equity:          
Preferred shares - $.01 par value; 5,000,000 shares authorized; none issued        
Common shares - $.001 par value; 25,000,000 shares authorized; 9,881,191 and 9,874,191 issued, respectively; 9,657,977 and 9,655,977 outstanding, respectively   9,881    9,874 
Additional paid-in capital   33,137,501    33,110,536 
Treasury stock, at cost – 223,214 and 218,214 shares   (619,688)   (590,234)
Retained earnings (accumulated deficit)   597,161    (448,801)
Total stockholders’ equity   33,124,855    32,081,375 
           
Total liabilities and stockholders’ equity  $56,985,658   $55,903,132 

 

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

 

2
 

 

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   Three Months
Ended June 30,
   Six Months
Ended June 30,
 
   2019   2018   2019   2018 
Interest income from loans  $1,487,117   $1,423,352   $2,990,202   $2,852,600 
Origination fees   292,253    244,348    577,227    479,574 
Total revenue   1,779,370    1,667,700    3,567,429    3,332,174 
                     
Operating costs and expenses:                    
Interest and amortization of debt service costs   387,511    413,074    766,393    810,778 
Referral fees   625    83    2,708    416 
General and administrative expenses   309,619    305,155    598,356    590,674 
Total operating costs and expenses   697,755    718,312    1,367,457    1,401,868 
Income from operations   1,081,615    949,388    2,199,972    1,930,306 
Other income   3,000        6,000     
Income before income tax expense   1,084,615    949,388    2,205,972    1,930,306 
Income tax expense   (572)       (572)    
Net income  $1,084,043   $949,388   $2,205,400   $1,930,306 
                     
Basic and diluted net income per common share outstanding:                    
—Basic  $0.11   $0.12   $0.23   $0.24 
—Diluted  $0.11   $0.12   $0.23   $0.24 
                     
Weighted average number of common shares outstanding:                    
—Basic   9,659,317    8,111,276    9,657,557    8,110,112 
—Diluted   9,661,620    8,119,984    9,659,897    8,117,817 

 

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 JUNE 30, 2019

 

   Common Stock   Additional
Paid in
   Treasury Stock   Retained     
   Shares   Amount   Capital   Shares   Cost   Earnings   Totals 
Balance, April 1, 2019   9,881,191   $9,881   $33,134,235    219,214   $(595,878)  $672,556   $33,220,794 
Purchase of treasury shares                  4,000    (23,810)        (23,810)
Non cash compensation             3,266                   3,266 
Dividends paid                            (1,159,438)   (1,159,438)
Net income                            1,084,043    1,084,043 
Balance, June 30, 2019   9,881,191   $9,881   $33,137,501    223,214   $(619,688)  $597,161   $33,124,855 

 

FOR THE THREE MONTHS ENDED JUNE 30, 2018

 

   Common Stock   Additional Paid in   Treasury Stock   Retained     
   Shares   Amount   Capital   Shares   Cost   Earnings   Totals 
Balance, April 1, 2018   8,319,036   $8,319   $23,170,777    210,102   $(541,491)  $593,252   $23,230,857 
Exercise of warrants   8,881    9    48,726                   48,735 
Non cash compensation             3,266                   3,266 
Dividends paid                            (973,072)   (973,072)
Net income                            949,388    949,388 
Balance, June 30, 2018   8,327,917   $8,328   $23,222,769    210,102   $(541,491)  $569,568   $23,259,174 

 

FOR THE SIX MONTHS ENDED JUNE 30, 2019

 

   Common Stock   Additional Paid in   Treasury Stock   Accumulated Deficit (Retained     
   Shares   Amount   Capital   Shares   Cost   Earnings)   Totals 
Balance, January 1, 2019   9,874,191   $9,874   $33,110,536    218,214   $(590,234)  $(448,801)  $32,081,375 
Exercise of options   7,000    7    20,433                   20,440 
Purchase of treasury shares                  5,000    (29,454)        (29,454)
Non cash compensation             6,532                   6,532 
Dividends paid                            (1,159,438)   (1,159,438)
Net income                            2,205,400    2,205,400 
Balance, June 30, 2019   9,881,191   $9,881   $33,137,501    223,214   $(619,688)  $597,161   $33,124,855 

 

FOR THE SIX MONTHS ENDED JUNE 30, 2018

 

   Common Stock   Additional Paid in   Treasury Stock   Accumulated Deficit (Retained     
   Shares   Amount   Capital   Shares   Cost   Earnings)   Totals 
Balance, January 1, 2018   8,319,036   $8,319   $23,167,511    210,102   $(541,491)  $(387,666)  $22,246,673 
Exercise of warrants   8,881    9    48,726                   48,735 
Non cash compensation             6,532                   6,532 
Dividends paid                            (973,072)   (973,072)
Net income                            1,930,306    1,930,306 
Balance, June 30, 2018   8,327,917   $8,328   $23,222,769    210,102   $(541,491)  $569,568   $23,259,174 

 

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)

 

   Six Months Ended June 30, 
   2019   2018 
Cash flows from operating activities:          
Net income  $2,205,400   $1,930,306 
Adjustments to reconcile net income to net cash provided by operating activities -          
Amortization of deferred financing costs   47,244    51,451 
Depreciation   815    2,274 
Non cash compensation expense   6,532    6,532 
Changes in operating assets and liabilities:          
Interest receivable on loans   (76,123)   (35,760)
Other assets   (55,243)   (76,097)
Accounts payable and accrued expenses   (60,927)   19,952 
Deferred origination fees   (8,233)   130,105 
Net cash provided by operating activities   2,059,465    2,028,763 
           
Cash flows from investing activities:          
Issuance of short term loans   (24,697,965)   (27,792,500)
Collections received from loans   23,622,125    21,070,000 
Net cash used in investing activities   (1,075,840)   (6,722,500)
           
Cash flows from financing activities:          
Proceeds from line of credit, net   1,115,656    3,085,406 
Proceeds from short-term loans, net       3,430,000 
Dividends paid   (2,318,155)   (1,865,055)
Purchase of treasury shares   (29,454)    
Capital raising costs       (12,300)
Proceeds from exercise of stock options and warrants   20,440    48,735 
Net cash (used in) provided by financing activities   (1,211,513)   4,686,786 
           
Net decrease in cash and restricted cash   (227,888)   (6,951)
Cash and restricted cash, beginning of period   355,057    136,441 
Cash and restricted cash, end of period  $127,169   $129,490 
           
Supplemental Cash Flow Information:          
Taxes paid during the period  $572   $ 
Interest paid during the period  $733,160   $733,215 
           
Non-cash Investing Activities:          
Operating lease right-of-use asset  $113,724   $ 
Operating lease liability  $113,724   $ 

 

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

 

5
 

 

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

 

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, 2018 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.

 

The Company presents deferred financing costs, excluding those incurred in connection with its line of credit, in the balance sheet as a direct reduction from the related debt liability rather than an asset, in accordance with Accounting Standards Update (“ASU”) 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. These costs, incurred in connection with the issuance of the Company’s senior secured notes, are being amortized over ten years, using the straight-line method, as the difference between use of the effective interest method is not material.

 

The Company initially established a credit line pursuant to the Credit and Security Agreement with Webster Business Credit Corporation (“Webster”) dated February 27, 2015 (the “Webster Credit Line”), which was subsequently amended and restated on August 8, 2017 (“Amended Credit Agreement”) with Webster and Flushing Bank (“Flushing”). Deferred financing costs in connection with the Webster Credit Line and the Amended Credit Agreement, as discussed in Note 5, are presented as an asset in the balance sheet, in accordance with ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated With Line of Credit Arrangements”. These costs are being amortized over the term of the respective agreement, using the straight-line method.

 

2. RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance, including industry specific guidance. Several ASUs expanding and clarifying the initial guidance issued in ASU 2014-09 have been released since May 2014. Exclusions from the scope of this guidance include revenue resulting from loans, investment securities (available-for-sale and trading), investments in unconsolidated entities and leases. The Company adopted the ASU effective January 1, 2018. The Company evaluated the applicability of this guidance and concluded that the adoption did not have an effect on its consolidated financial statements.

 

6
 

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which amends the existing accounting standards for leases. This ASU requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet for the obligation to make payments for all leases, with the exception of those leases with a term of 12 months or less. This ASU also requires expanded disclosures regarding leasing arrangements. The Company adopted the ASU effective January 1, 2019, and concluded that the adoption did not have a material impact on its consolidated financial statements.

 

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The amendments in this ASU require that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The adoption of this guidance required the Company to reconcile changes in cash, cash equivalents, and restricted cash on the consolidated statement of cash flows. As a result, the Company no longer presents transfers between cash and cash equivalents and restricted cash in the statement of cash flows. The Company adopted this ASU in 2018, and applied the guidance retrospectively to the 2017 consolidated statement of cash flows.

 

In June 2018, the FASB issued ASU 2018-07, “Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This ASU supersedes Accounting Standards Codification (“ASC”) 505-50, “Equity Based Payment to Non-Employees,” (“ASC 505-50”) and expands the scope of ASC 718, “Compensation – Stock Compensation” (“ASC 718”), to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

In May 2019, the FASB issued ASU 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief.” This ASU allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The Company plans to adopt both ASU 2016-13 and ASU 2019-05 effective January 1, 2020. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the Company’s consolidated financial statements.

 

3. COMMERCIAL LOANS

 

Loans Receivable

 

The Company offers short-term secured non–banking loans to real estate investors (also known as hard money) to fund their acquisition and construction of properties located in the New York metropolitan area, including New Jersey and Connecticut, and in Florida. The loans are principally secured by collateral consisting of first mortgage positions on real estate and, generally, accompanied by personal guarantees from the principals of the borrowers. The loans are generally for a term of one year. The 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.

 

7
 

 

At June 30, 2019, the Company was committed to $7,349,035 in construction loans that can be drawn by the borrowers when certain conditions are met.

 

At June 30, 2019, no one entity has loans outstanding representing more than 10% of the total balance of the loans outstanding.

 

The Company generally grants loans for a term of one year. When a performing loan reaches its maturity and the borrower requests an extension, the Company may extend the term of the loan beyond one year. Prior to granting an extension of any loan, the Company reevaluates the underlying collateral.

 

Credit Risk

 

Credit risk profile based on loan activity as of June 30, 2019 and December 31, 2018:

 

Performing loans  Developers-
Residential
   Developers-
Commercial
   Developers-
Mixed Used
   Total outstanding
loans
 
June 30, 2019  $49,441,967   $3,060,000   $3,410,000   $55,911,967 
December 31, 2018  $47,301,127   $3,660,000   $3,875,000   $54,836,127 

 

At June 30, 2019, the Company’s loans receivable includes loans in the amount of $360,000, $3,960,000 and $4,607,000 originally due in 2016, 2017 and 2018, 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. Accordingly, at June 30, 2019, no loan impairments exist and there are no provisions for impairments of loans or recoveries thereof.

 

Subsequent to the balance sheet date, approximately $1,916,000 of the loans receivable at June 30, 2019 were paid off, including $245,000 originally due on or before December 31, 2018.

 

4. 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 credit line established pursuant to the Amended Credit Agreement (see Note 5).

 

5. LINE OF CREDIT

 

The Company maintains the Webster Credit Line which currently provides it with a credit line of $25 million in the aggregate secured by assignments of mortgages and other collateral. The Webster Credit Line contains various covenants and restrictions including, among other covenants and restrictions, limiting the amount that the Company can borrow relative to the value of the underlying collateral, maintaining various financial ratios and limitations on the terms of loans the Company makes to its customers, limiting the Company’s ability to pay dividends under certain circumstances, and limiting the Company’s ability to repurchase its common shares, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates. In addition, the Webster Credit Line contains a cross default provision which will deem any default under any indebtedness owed by us or our subsidiary, MBC Funding, as a default under the credit line.

 

Effective July 11, 2018, the Company entered into a Waiver and Amendment No. 1 to the Amended Credit Agreement (“Amendment II”) with Webster, Flushing and Mr. Ran, as guarantor. In conjunction with the execution of Amendment II, the Company also entered into an Amended and Restated Revolving Credit Note in the principal aggregate amount of $10,000,000 with Flushing (the “Amended Flushing Note”) and a Second Amended and Restated Fee Letter with Webster and Flushing, each dated July 11, 2018. Pursuant to the terms of Amendment II, the Company’s existing Webster Credit Line was increased by $5 million to $25 million in the aggregate. In addition, the interest rates relating to Webster Credit Line were amended such that the interest rates now equal (i) LIBOR plus a premium, which rate aggregated approximately 6.40% as of June 30, 2019, or (ii) a Base Rate (as defined in the Amended Credit Agreement) plus 2.25% plus a 0.5% agency fee, as chosen by the Company for each drawdown. Amendment II also permits the Company to repurchase, redeem or otherwise retire its equity securities in an amount not to exceed ten percent of our annual net income from the prior fiscal year. In addition, Mr. Ran has provided a personal guaranty to the Webster Credit Line, which shall not exceed the sum of $500,000 plus any costs relating to the enforcement of the personal guaranty.

 

8
 

 

The costs to establish and to amend the Webster Credit Line are being amortized over the term of the respective agreement, using the straight-line method. The amortization costs for the six months ended June 30, 2019 and 2018 were $9,702 and $13,908, respectively. The Webster Credit Line expires February 28, 2021, unless sooner terminated, and contains a provision that permits a Company option for a further extension until February 28, 2022, subject to Webster’s consent.

 

The Company was in compliance with all covenants of the Webster Credit Line, as amended, as of June 30, 2019. At June 30, 2019, the outstanding amount under the Amended Credit Agreement was $17,737,803. The interest rate on the amount outstanding fluctuates daily. The rate, including a 0.5% Agency Fee, at June 30, 2019, was approximately 6.40%.

 

6. SENIOR SECURED NOTES

 

On April 25, 2016, in an initial public offering, MBC Funding issued 6% senior secured notes, due April 22, 2026 (the “Notes”) in the aggregate principal amount of $6,000,000 under the Indenture, dated April 25, 2016, among MBC Funding, as Issuer, the Company, as Guarantor, and Worldwide Stock Transfer LLC, as Indenture Trustee (the “Indenture”). The Notes, having a principal amount of $1,000 each, are listed on the NYSE American and trade under the symbol “LOAN/26”. Interest accrues on the Notes commencing on May 16, 2016. The accrued interest is payable monthly in cash, in arrears, on the 15th day of each calendar month commencing June 2016.

 

Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by MBC Funding, together with MBC Funding’s cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times. To the extent the aggregate principal amount of the mortgage loans owned by MBC Funding plus MBC Funding’s cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, MBC Funding is required to repay, on a monthly basis, the principal amount of the Notes equal to the amount necessary such that, after giving effect to such repayment, the aggregate principal amount of all mortgage loans owned by MBC Funding plus, MBC Funding’s cash on hand at such time is equal to or greater than 120% of the outstanding principal amount of the Notes. For this purpose, each mortgage loan is deemed to have a value equal to its outstanding principal balance, unless the borrower is in default of its obligations.

 

MBC Funding may redeem the Notes, in whole or in part, at any time after April 22, 2019 upon at least 30 days prior written notice to the Noteholders. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest thereon up to, but not including, the date of redemption, without penalty or premium; provided that (i) if the Notes are redeemed on or after April 22, 2019 but prior to April 22, 2020, the redemption price will be 103% of the principal amount of the Notes redeemed and (ii) if the Notes are redeemed on or after April 22, 2020 but prior to April 22, 2021, the redemption price will be 101.5% of the principal amount of the Notes redeemed plus, in either case, the accrued but unpaid interest on the Notes redeemed up to, but not including, the date of redemption.

 

9
 

 

Each Noteholder has the right to cause MBC Funding to redeem his, her or its Notes on April 22, 2021. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest up to, but not including, the date of redemption, without penalty or premium. In order to exercise this right, the Noteholder must notify MBC Funding, in writing, no earlier than November 22, 2020 and no later than January 22, 2021. All Notes that are subject to a properly and timely notice will be redeemed on April 22, 2021. Any Noteholder who fails to make a proper and timely election will be deemed to have waived his, her or its right to have his, her or its Notes redeemed prior to the maturity date.

 

MBC Funding is obligated to offer to redeem the Notes if there occurs a “change of control” with respect to MBC Funding or the Company or if MBC Funding or the Company sell any assets unless, in the case of an asset sale, the proceeds are reinvested in the business of the seller. The redemption price in connection with a “change of control” will be 101% of the principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption. The redemption price in connection with an asset sale will be the outstanding principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption.

 

7. EARNINGS PER SHARE OF COMMON STOCK

 

Basic and diluted earnings per share are calculated in accordance with ASC 260, “Earnings Per Share” (“ASC 260”). Under ASC 260, basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the potential dilution from the exercise of stock options and warrants for common shares using the treasury stock method. The numerator in calculating both basic and diluted earnings per common share for each period is the reported net income.

 

The denominator is based on the following weighted average number of common shares:

 

   Three Months
Ended June 30,
   Six Months
Ended June 30,
 
   2019   2018   2019   2018 
Basic weighted average common shares outstanding   9,659,317    8,111,276    9,657,557    8,110,112 
Incremental shares for assumed exercise of options and warrants   2,303    8,708    2,340    7,705 
Diluted weighted average common shares outstanding   9,661,620    8,119,984    9,659,897    8,117,817 

 

For the three and six months ended June 30, 2019, 43,959 and 43,922 stock warrants were not included in the diluted earnings per share calculation, respectively, because their effect would have been anti-dilutive. For the three and six months ended June 30, 2018, 46,054 and 47,057 vested stock options and warrants were not included in the diluted earnings per share calculation, respectively, because their effect would have been anti-dilutive.

 

8. SHARE – BASED COMPENSATION

 

The Company measures and recognizes compensation awards for all stock option grants made to employees and directors, based on their fair value in accordance with ASC 718, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. A key provision of ASC 718 is to measure the cost of employee services received in exchange for an award of equity instruments (including stock options) based on the grant-date fair value of the award. The cost will be recognized over the service period during which an employee is required to provide service in exchange for the award (i.e., the requisite service period or vesting period). The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC 718 and ASC 505-50. All transactions with non-employees, in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more appropriately measurable.

 

10
 

 

Share based compensation expense recognized under ASC 718 for each of the six months ended June 30, 2019 and 2018 of $6,532 represents the amortization of the fair value of 1,000,000 restricted shares granted to the Company’s Chief Executive Officer on September 9, 2011 of $195,968, after adjusting for the effect on the fair value of the stock options related to this transaction. The fair value will be amortized over 15 years.

 

On July 31, 2014, in connection with the Company’s public offering in July 2014, the Company issued warrants to purchase up to 87,719 common shares, with an exercise price of $3.5625 per common share, to the representative of the underwriters of the offering (the “July 2014 Representative Warrants”). These warrants are exercisable at any time, and from time to time, in whole or in part, commencing on July 28, 2015 and expire on July 28, 2019. The fair value of these warrants, using the Black-Scholes option pricing model, on the date of issuance was $42,224. At June 30, 2019, July 2014 Representative Warrants to purchase up to 3,000 common shares were outstanding.

 

On May 29, 2015, in connection with the Company’s public offering in May 2015, the Company issued warrants to purchase up to 50,750 common shares, with an exercise price of $5.4875 per common share, to the representative of the underwriters of the offering (the “May 2015 Representative Warrants”). These warrants are exercisable at any time, and from time to time, in whole or in part, commencing on May 22, 2016 and expire on May 22, 2020. The fair value of these warrants, using the Black-Scholes option pricing model, on the date of issuance was $54,928. At June 30, 2019, May 2015 Representative Warrants to purchase up to 9,650 common shares were outstanding.

 

On August 15, 2016, in connection with a public offering of the Company’s common shares, the Company issued warrants to purchase up to 33,612 common shares, with an exercise price of $7.4375 per common share, to the representative of the underwriters of the offering (the “August 2016 Representative Warrants”). The warrants are exercisable at any time, and from time to time, in whole or in part, commencing on August 9, 2017 and expire on August 9, 2021. The fair value of these warrants, using the Black-Scholes option pricing model, on the date of issuance was $47,020. At June 30, 2019, all of the August 2016 Representative Warrants were outstanding.

 

********

 

11
 

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q. The discussion and analysis contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements.

 

We are a New York-based real estate finance company that specializes in originating, servicing and managing a portfolio of first mortgage loans. We offer short-term, secured, non-banking loans (sometimes referred to as “hard money” loans), which we may renew or extend on, before or after their initial term expires, to real estate investors to fund their acquisition, renovation, rehabilitation or development of residential or commercial properties located in the New York metropolitan area, including New Jersey and Connecticut, and in Florida.

 

The properties securing the loans are generally classified as residential or commercial real estate and, typically, are not income producing. Each loan is secured by a first mortgage lien on real estate. In addition, each loan is personally guaranteed by the principal(s) of the borrower, which guarantee may be collaterally secured by a pledge of the guarantor’s interest in the borrower. The face amount of the loans we originated in the past seven years ranged from $30,000 to a maximum of $2.5 million. Our lending policy limits the maximum amount of any loan to the lower of (i) 9.9% of the aggregate amount of our loan portfolio (not including the loan under consideration) and (ii) $2.5 million. Our loans typically have a maximum initial term of 12 months and bear interest at a fixed rate of 10% 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.

 

12
 

 

Since commencing this business in 2007, we have made over 780 loans and never foreclosed on a property. We currently manage approximately 130 loans. In addition, none of our loans have ever gone into default, although sometimes we have renewed or extended our loans to enable the borrower to avoid premature sale or refinancing of the property. When we renew or extend a loan we receive additional “points” and other fees.

 

Our primary business objective is to grow our loan portfolio while protecting and preserving capital in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term through dividends. We intend to achieve this objective by continuing to selectively originate and fund loans secured by first mortgages on residential 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 significant opportunities for us to selectively originate high-quality first mortgage loans on attractive terms and we believe that these market conditions should persist for a number of years. We have built our business on a foundation of intimate real estate knowledge of the New York metropolitan area the Company operates in, 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 real estate knowledge New York metropolitan area the Company operates in, 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 six months ended June 30, 2019 and 2018, the total amounts of $24,697,965 and $27,792,500, respectively, have been lent, offset by collections received from borrowers, under our commercial loans of $23,622,125 and $21,070,000, respectively.

 

At June 30, 2019, we were committed to $7,349,035 in construction loans that can be drawn by the borrowers when certain conditions are met.

 

To date, we have not experienced any defaults and none of the loans previously made have been non-collectable, although no assurances can be given that existing or future loans may not go into default or prove to be non-collectible in the future.

 

We satisfied all of the requirements to be taxed as a REIT and elected to be taxed as a REIT commencing with our taxable year ended December 31, 2014. In order to maintain our qualification for taxation as a REIT and avoid any excise tax on our net taxable income, we are required to distribute each year at least 90% of our REIT taxable income. If we distribute less than 100% of our taxable income (but more than 90%), the undistributed portion will be taxed at the regular corporate income tax rates. As a REIT, we may also be subject to federal excise taxes and minimum state taxes.

 

13
 

 

Results of Operations

 

Three months ended June 30, 2019 compared to three months ended June 30, 2018

 

Revenue

 

Total revenues for the three months ended June 30, 2019 were approximately $1,779,000 compared to approximately $1,668,000 for the three months ended June 30, 2018, an increase of $111,000, or 6.7%. The increase in revenue represents an increase in lending operations. For the three months ended June 30, 2019 and 2018, approximately $1,487,000 and $1,423,000, respectively, of our revenues were attributable to interest income on secured commercial loans that we offer to small businesses, and approximately $292,000 and $244,000, respectively, of our revenues were attributable to origination fees on such loans. The loans are principally secured by collateral consisting of real estate and, generally, accompanied by personal guarantees from the principals of the borrowers.

 

Interest and amortization of debt service costs

 

Interest and amortization of debt service costs for the three months ended June 30, 2019 were approximately $388,000 compared to approximately $413,000 for the three months ended June 30, 2018, a decrease of $25,000, or 6.1%. The decrease is primarily attributable to lower outstanding amounts under the Webster Credit Line (See Note 5 to the financial statements included elsewhere in this report) following the Company’s public offering in July 2018, as described below.

 

General and administrative expenses

 

General and administrative expenses for the three months ended June 30, 2019 were approximately $310,000 compared to approximately $305,000 for the three months ended June 30, 2018, an increase of $5,000, or 1.6%. The increase is primarily attributable to increases in insurance and payroll expenses, offset by decreases in bank, travel and meal expenses.

 

Net income

 

Net income for the three months ended June 30, 2019 was approximately $1,084,000 compared to approximately $949,000 for the three months ended June 30, 2018, an increase of $135,000, or 14.2%. The increase is primarily attributable to the increase in revenue and the decrease in interest costs.

 

Six months ended June 30, 2019 compared to six months ended June 30, 2018

 

Revenue

 

Total revenues for the six months ended June 30, 2019 were approximately $3,567,000 compared to approximately $3,332,000 for the six months ended June 30, 2018, an increase of $235,000, or 7.1%. The increase in revenue represents an increase in lending operations. For the six months ended June 30, 2019 and 2018, revenues of approximately $2,990,000 and $2,853,000, respectively, were attributable to interest income on secured commercial loans that we offer to small businesses, and approximately $577,000 and $480,000, respectively, were attributable to origination fees on such loans. The loans are principally secured by collateral consisting of real estate and, generally, accompanied by personal guarantees from the principals of the borrowers.

 

Interest and amortization of debt service costs

 

Interest and amortization of debt service costs for the six months ended June 30, 2019 were approximately $766,000 compared to approximately $811,000 for the six months ended June 30, 2018, a decrease of $45,000, or 5.5%. The decrease is primarily attributable to lower outstanding amounts under the Webster Credit Line (See Note 5 to the financial statements included elsewhere in this report) as a result of repayments following the Company’s public offering in July 2018, as described below.

 

14
 

 

General and administrative expenses

 

General and administrative expenses for the six months ended June 30, 2019 were approximately $598,000 compared to approximately $591,000 for the six months ended June 30, 2018, an increase of $7,000, or 1.2%. The increase is primarily attributable to increases in insurance and payroll expenses, offset by decreases in bank, travel and meal expenses.

 

Net income

 

Net income for the six months ended June 30, 2019 was approximately $2,205,000 compared to approximately $1,930,000 for the six months ended June 30, 2018, an increase of $275,000, or 14.2%. The increase is primarily attributable to the increase in revenue and the decrease in interest costs.

 

Liquidity and Capital Resources

 

At June 30, 2019, we had cash of approximately $127,000 compared to cash of approximately $204,000 at December 31, 2018 (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 six months ended June 30, 2019, net cash provided by operating activities was approximately $2,059,000, compared to approximately $2,029,000 for the six months ended June 30, 2018. The increase in net cash provided by operating activities primarily resulted from an increase in net income, offset by an increase in interest receivable on loans and a decrease in accrued expenses.

 

For the six months ended June 30, 2019, net cash used in investing activities was approximately $1,076,000, compared to approximately $6,723,000 for the six months ended June 30, 2018. Net cash used in investing activities for the six months ended June 30, 2019 consisted of the issuance of commercial loans of approximately $24,698,000, offset by collection of our commercial loans of approximately $23,622,000. In the period ended June 30, 2018, net cash used in investing activities consisted of the issuance of commercial loans of approximately $27,793,000, offset by collection of our commercial loans of $21,070,000.

 

For the six months ended June 30, 2019, net cash used in financing activities was approximately $1,212,000, compared to net cash provided by financing activities of approximately $4,687,000 for the six months ended June 30, 2018. Net cash used in financing activities for the six months ended June 30, 2019 reflects the dividend payments of approximately $2,318,000 and the purchase of treasury shares of approximately $29,000, offset by the net proceeds from the Webster Credit Line of approximately $1,116,000 and the proceeds from the exercise of options of approximately $20,000. Net cash provided by financing activities for the six months ended June 30, 2018 reflects the net proceeds from the Webster Credit Line of approximately $3,085,000, the net proceeds from short-term loans from our Chief Executive Officer and a third party of $3,430,000, and the proceeds from the exercise of warrants of approximately $49,000, offset by the dividend payments of approximately $1,865,000 and capital raising costs of approximately $12,000 relating to our public offering, as described below.

 

We maintain the Webster Credit Line which currently provides us with a credit line of $25 million in the aggregate secured by assignments of mortgages and other collateral. On August 8, 2017, we entered into the Amended Credit Agreement.

 

Effective July 11, 2018, we entered into a Waiver and Amendment No. 1 to the Amended Credit Agreement (“Amendment II”) with Webster, Flushing and Mr. Ran, as guarantor. In conjunction with the execution of Amendment II, we also entered into an Amended and Restated Revolving Credit Note in the principal aggregate amount of $10,000,000 with Flushing (the “Amended Flushing Note”) and a Second Amended and Restated Fee Letter with Webster and Flushing, each dated July 11, 2018. Pursuant to the terms of Amendment II, the Company’s existing Webster Credit Line was increased by $5 million to $25 million in the aggregate. In addition, the interest rates relating to Webster Credit Line were amended such that the interest rates now equal (i) LIBOR plus a premium, which rate aggregated approximately 6.40% as of June 30, 2019, or (ii) a Base Rate (as defined in the Amended Credit Agreement) plus 2.25% plus a 0.5% agency fee, as chosen by the Company for each drawdown. Amendment II also permits the Company to repurchase, redeem or otherwise retire its equity securities in an amount not to exceed ten percent of our annual net income from the prior fiscal year. In addition, Mr. Ran has provided a personal guaranty to the Webster Credit Line, which shall not exceed the sum of $500,000 plus any costs relating to the enforcement of the personal guaranty.

 

15
 

 

We were in compliance with all covenants of the Webster Credit Line, as amended, as of June 30, 2019. At June 30, 2019, the outstanding amount under the Webster Credit Line was $17,737,803. The interest rate on the amount outstanding fluctuates daily. The rate, including a 0.5% Agency Fee, at June 30, 2019, was approximately 6.40%.

 

On July 24, 2018, we completed a public offering of 1,428,572 common shares. In addition, the underwriter partially exercised its over-allotment option for an additional 117,214 common shares. The gross proceeds from the offering, including the partial exercise of the over-allotment option, were approximately $10.8 million and the net proceeds were approximately $9.9 million, after deducting our underwriting discounts and commissions and offering expenses.

 

On November 1, 2018, our Board of Directors authorized the Share Buy Back Program, pursuant to which we may, from time to time, purchase up to 100,000 shares of our common shares. The Share Buy Back Program does not obligate the Company to purchase any shares and expires on October 31, 2019. The authorization for the Share Buy Back Program is able to be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time. As of June 30, 2019, we have purchased 13,112 shares of the Company’s common shares for an aggregate of $78,197 pursuant to the Share Buy Back Program. For the three months ended June 30, 2019, we have purchased 4,000 shares of the Company’s common shares for an aggregate of $23,810 pursuant to the Share Buy Back Program.

 

We anticipate that our current cash balances, the proceeds of our 2018 public offering, and the Amended 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.

 

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, 2018.

 

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.

 

16
 

 

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 June 30, 2019 (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 SEC’s rules and forms and (ii) are accumulated and communicated to our management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Control Over Financial Reporting

 

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2019 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 November 1, 2018, our Board of Directors authorized the Share Buy Back Program, pursuant to which we may, from time to time, purchase up to 100,000 shares of our common shares. The Share Buy Back Program does not obligate the Company to purchase any shares and expires on October 31, 2019. The authorization for the Share Buy Back Program is able to be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time.

 

As set forth in the table below, during the quarter ended June 30, 2019, the Company repurchased 4,000 shares of the Company’s common shares under the stock buy-back program at an aggregate cost of $23,810.

 

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

 
April 1-30, 2019   0   $    0    90,888 
May 1-31, 2019   4,000   $5.95    4,000    86,888 
June 1-30, 2019   0   $    0    86,888 
Total   4,000   $5.95    4,000    86,888 

 

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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   XBRL Taxonomy Extension Schema Document
     
101.SCH   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document

 

 

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

 

18
 

 

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: July 26, 2019 By: /s/ Assaf Ran
    Assaf Ran, President and Chief Executive Officer
    (Principal Executive Officer)

 

Date: July 26, 2019 By: /s/ Vanessa Kao
    Vanessa Kao, Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

19
 

 

 

 

EXHIBIT 31.1

 

CERTIFICATION

 

I, Assaf Ran, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Manhattan Bridge Capital, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: July 26, 2019  
   
  /s/ Assaf Ran
  Assaf Ran
  President and Chief Executive Officer
  (Principal Executive Officer)

 

 
 

 

 

 

EXHIBIT 31.2

 

CERTIFICATION

 

I, Vanessa Kao, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Manhattan Bridge Capital, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: July 26, 2019  
   
  /s/ Vanessa Kao
  Vanessa Kao
  Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

 
 

 

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

 

In connection with the Quarterly Report on Form 10-Q of Manhattan Bridge Capital, Inc. (the “Company”) for the period ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Assaf Ran, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, that, to my knowledge:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: July 26, 2019  
   
/s/ Assaf Ran  
Assaf Ran  
President and Chief Executive Officer  
(Principal Executive Officer)  

 

 
 

 

 

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

 

In connection with the Quarterly Report on Form 10-Q of Manhattan Bridge Capital, Inc. (the “Company”) for the period ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Vanessa Kao, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, that, to my knowledge:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: July 26, 2019  
   
/s/ Vanessa Kao  
Vanessa Kao  
Chief Financial Officer  
(Principal Financial and Accounting Officer)  

 

 
 

 

 

v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Jul. 26, 2019
Document And Entity Information    
Entity Registrant Name MANHATTAN BRIDGE CAPITAL, INC  
Entity Central Index Key 0001080340  
Document Type 10-Q  
Document Period End Date Jun. 30, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business Flag true  
Entity Emerging Growth Company false  
Entity Ex Transition Period false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   9,657,977
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2019  
v3.19.2
Consolidated Balance Sheets - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Assets    
Loans receivable $ 55,911,967 $ 54,836,127
Interest receivable on loans 672,900 596,777
Cash 127,169 203,682
Cash - restricted 151,375
Other assets 127,559 73,131
Operating lease right-of-use asset, net 113,724
Deferred financing costs 32,339 42,040
Total assets 56,985,658 55,903,132
Liabilities:    
Line of credit 17,737,803 16,622,147
Senior secured notes (net of deferred financing costs of $509,956 and $547,499, respectively) 5,490,044 5,452,501
Deferred origination fees 396,443 404,676
Accounts payable and accrued expenses 122,789 183,716
Operating lease liability 113,724
Dividends payable 1,158,717
Total liabilities 23,860,803 23,821,757
Commitments and contingencies
Stockholders' equity:    
Preferred shares - $.01 par value; 5,000,000 shares authorized; none issued
Common shares - $.001 par value; 25,000,000 shares authorized; 9,881,191 and 9,874,191 issued, respectively; 9,657,977 and 9,655,977 outstanding, respectively 9,881 9,874
Additional paid-in capital 33,137,501 33,110,536
Treasury stock, at cost - 223,214 and 218,214 shares (619,688) (590,234)
Retained earnings (accumulated deficit) 597,161 (448,801)
Total stockholders' equity 33,124,855 32,081,375
Total liabilities and stockholders' equity $ 56,985,658 $ 55,903,132
v3.19.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Debt issuance costs, net (deferred financing costs) $ 509,956 $ 547,499
Preferred stock, par value $ .01 $ .01
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares issued
Common stock, par value $ .001 $ .001
Common stock, shares authorized 25,000,000 25,000,000
Common stock, shares issued 9,881,191 9,874,191
Common stock, shares outstanding 9,657,977 9,655,977
Treasury stock, shares 223,214 218,214
v3.19.2
Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Income Statement [Abstract]        
Interest income from loans $ 1,487,117 $ 1,423,352 $ 2,990,202 $ 2,852,600
Origination fees 292,253 244,348 577,227 479,574
Total revenue 1,779,370 1,667,700 3,567,429 3,332,174
Operating costs and expenses:        
Interest and amortization of debt service costs 387,511 413,074 766,393 810,778
Referral fees 625 83 2,708 416
General and administrative expenses 309,619 305,155 598,356 590,674
Total operating costs and expenses 697,755 718,312 1,367,457 1,401,868
Income from operations 1,081,615 949,388 2,199,972 1,930,306
Other income 3,000 6,000
Income before income tax expense 1,084,615 949,388 2,205,972 1,930,306
Income tax expense (572) (572)
Net income $ 1,084,043 $ 949,388 $ 2,205,400 $ 1,930,306
Basic and diluted net income per common share outstanding:        
-Basic $ 0.11 $ 0.12 $ 0.23 $ 0.24
-Diluted $ 0.11 $ 0.12 $ 0.23 $ 0.24
Weighted average number of common shares outstanding:        
-Basic 9,659,317 8,111,276 9,657,557 8,110,112
-Diluted 9,661,620 8,119,984 9,659,897 8,117,817
v3.19.2
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($)
Common Stock [Member]
Additional Paid-in Capital [Member]
Treasury Stock [Member]
Accumulated Deficit (Retained Earnings) [Member]
Total
Beginning balance at Dec. 31, 2017 $ 8,319 $ 23,167,511 $ (541,491) $ (387,666) $ 22,246,673
Beginning balance, shares at Dec. 31, 2017 8,319,036   210,102    
Non cash compensation 6,532 6,532
Dividends paid (973,072) (973,072)
Exercise of warrants $ 9 48,726 48,735
Exercise of warrants, shares 8,881        
Net income 1,930,306 1,930,306
Ending balance at Jun. 30, 2018 $ 8,328 23,222,769 $ (541,491) 569,568 23,259,174
Ending balance, shares at Jun. 30, 2018 8,327,917   210,102    
Beginning balance at Mar. 31, 2018 $ 8,319 23,170,777 $ (541,491) 593,252 23,230,857
Beginning balance, shares at Mar. 31, 2018 8,319,036   210,102    
Non cash compensation 3,266 3,266
Dividends paid (973,072) (973,072)
Exercise of warrants $ 9 48,726 48,735
Exercise of warrants, shares 8,881        
Net income 949,388 949,388
Ending balance at Jun. 30, 2018 $ 8,328 23,222,769 $ (541,491) 569,568 23,259,174
Ending balance, shares at Jun. 30, 2018 8,327,917   210,102    
Beginning balance at Dec. 31, 2018 $ 9,874 33,110,536 $ (590,234) (448,801) 32,081,375
Beginning balance, shares at Dec. 31, 2018 9,874,191   218,214    
Purchase of treasury shares $ (29,454) (29,454)
Purchase of treasury shares, shares     5,000    
Non cash compensation 6,532 6,532
Dividends paid (1,159,438) (1,159,438)
Exercise of options $ 7 20,433 20,440
Exercise of options, shares 7,000        
Net income 2,205,400 2,205,400
Ending balance at Jun. 30, 2019 $ 9,881 33,137,501 $ (619,688) 597,161 33,124,855
Ending balance, shares at Jun. 30, 2019 9,881,191   223,214    
Beginning balance at Mar. 31, 2019 $ 9,881 33,134,235 $ (595,878) 672,556 33,220,794
Beginning balance, shares at Mar. 31, 2019 9,881,191   219,214    
Purchase of treasury shares $ (23,810) (23,810)
Purchase of treasury shares, shares     4,000    
Non cash compensation 3,266 3,266
Dividends paid (1,159,438) (1,159,438)
Net income 1,084,043 1,084,043
Ending balance at Jun. 30, 2019 $ 9,881 $ 33,137,501 $ (619,688) $ 597,161 $ 33,124,855
Ending balance, shares at Jun. 30, 2019 9,881,191   223,214    
v3.19.2
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Cash flows from operating activities:    
Net income $ 2,205,400 $ 1,930,306
Adjustments to reconcile net income to net cash provided by operating activities -    
Amortization of deferred financing costs 47,244 51,451
Depreciation 815 2,274
Non cash compensation expense 6,532 6,532
Changes in operating assets and liabilities:    
Interest receivable on loans (76,123) (35,760)
Other assets (55,243) (76,097)
Accounts payable and accrued expenses (60,927) 19,952
Deferred origination fees (8,233) 130,105
Net cash provided by operating activities 2,059,465 2,028,763
Cash flows from investing activities:    
Issuance of short term loans (24,697,965) (27,792,500)
Collections received from loans 23,622,125 21,070,000
Net cash used in investing activities (1,075,840) (6,722,500)
Cash flows from financing activities:    
Proceeds from line of credit, net 1,115,656 3,085,406
Proceeds from short-term loans, net 3,430,000
Dividends paid (2,318,155) (1,865,055)
Purchase of treasury shares (29,454)
Capital raising costs (12,300)
Proceeds from exercise of stock options and warrants 20,440 48,735
Net cash (used in) provided by financing activities (1,211,513) 4,686,786
Net decrease in cash and restricted cash (227,888) (6,951)
Cash and restricted cash, beginning of period 355,057 136,441
Cash and restricted cash, end of period 127,169 129,490
Supplemental Cash Flow Information:    
Taxes paid during the period 572
Interest paid during the period 733,160 733,215
Non-cash Investing Activities:    
Operating lease right-of-use asset 113,724
Operating lease liability $ 113,724
v3.19.2
The Company
6 Months Ended
Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
The Company

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, 2018 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.

 

The Company presents deferred financing costs, excluding those incurred in connection with its line of credit, in the balance sheet as a direct reduction from the related debt liability rather than an asset, in accordance with Accounting Standards Update (“ASU”) 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. These costs, incurred in connection with the issuance of the Company’s senior secured notes, are being amortized over ten years, using the straight-line method, as the difference between use of the effective interest method is not material.

 

The Company initially established a credit line pursuant to the Credit and Security Agreement with Webster Business Credit Corporation (“Webster”) dated February 27, 2015 (the “Webster Credit Line”), which was subsequently amended and restated on August 8, 2017 (“Amended Credit Agreement”) with Webster and Flushing Bank (“Flushing”). Deferred financing costs in connection with the Webster Credit Line and the Amended Credit Agreement, as discussed in Note 5, are presented as an asset in the balance sheet, in accordance with ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated With Line of Credit Arrangements”. These costs are being amortized over the term of the respective agreement, using the straight-line method.

v3.19.2
Recent Technical Accounting Pronouncements
6 Months Ended
Jun. 30, 2019
Accounting Changes and Error Corrections [Abstract]  
Recent Technical Accounting Pronouncements

2. RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance, including industry specific guidance. Several ASUs expanding and clarifying the initial guidance issued in ASU 2014-09 have been released since May 2014. Exclusions from the scope of this guidance include revenue resulting from loans, investment securities (available-for-sale and trading), investments in unconsolidated entities and leases. The Company adopted the ASU effective January 1, 2018. The Company evaluated the applicability of this guidance and concluded that the adoption did not have an effect on its consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which amends the existing accounting standards for leases. This ASU requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet for the obligation to make payments for all leases, with the exception of those leases with a term of 12 months or less. This ASU also requires expanded disclosures regarding leasing arrangements. The Company adopted the ASU effective January 1, 2019, and concluded that the adoption did not have a material impact on its consolidated financial statements.

 

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The amendments in this ASU require that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The adoption of this guidance required the Company to reconcile changes in cash, cash equivalents, and restricted cash on the consolidated statement of cash flows. As a result, the Company no longer presents transfers between cash and cash equivalents and restricted cash in the statement of cash flows. The Company adopted this ASU in 2018, and applied the guidance retrospectively to the 2017 consolidated statement of cash flows.

 

In June 2018, the FASB issued ASU 2018-07, “Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This ASU supersedes Accounting Standards Codification (“ASC”) 505-50, “Equity Based Payment to Non-Employees,” (“ASC 505-50”) and expands the scope of ASC 718, “Compensation – Stock Compensation” (“ASC 718”), to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

In May 2019, the FASB issued ASU 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief.” This ASU allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The Company plans to adopt both ASU 2016-13 and ASU 2019-05 effective January 1, 2020. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the Company’s consolidated financial statements.

v3.19.2
Commercial Loans
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Commercial Loans

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 first mortgage positions on real estate and, generally, accompanied by personal guarantees from the principals of the borrowers. The loans are generally for a term of one year. The loans are initially recorded, and carried thereafter, in the financial statements at cost. Most of the loans provide for receipt of interest only during the term of the loan and a balloon payment at the end of the term.

 

At June 30, 2019, the Company was committed to $7,349,035 in construction loans that can be drawn by the borrowers when certain conditions are met.

 

At June 30, 2019, no one entity has loans outstanding representing more than 10% of the total balance of the loans outstanding.

 

The Company generally grants loans for a term of one year. When a performing loan reaches its maturity and the borrower requests an extension, the Company may extend the term of the loan beyond one year. Prior to granting an extension of any loan, the Company reevaluates the underlying collateral.

 

Credit Risk

 

Credit risk profile based on loan activity as of June 30, 2019 and December 31, 2018:

 

Performing loans   Developers-
Residential
    Developers-
Commercial
    Developers-
Mixed Used
    Total outstanding
loans
 
June 30, 2019   $ 49,441,967     $ 3,060,000     $ 3,410,000     $ 55,911,967  
December 31, 2018   $ 47,301,127     $ 3,660,000     $ 3,875,000     $ 54,836,127  

 

At June 30, 2019, the Company’s loans receivable includes loans in the amount of $360,000, $3,960,000 and $4,607,000 originally due in 2016, 2017 and 2018, 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. Accordingly, at June 30, 2019, no loan impairments exist and there are no provisions for impairments of loans or recoveries thereof.

 

Subsequent to the balance sheet date, approximately $1,916,000 of the loans receivable at June 30, 2019 were paid off, including $245,000 originally due on or before December 31, 2018.

v3.19.2
Cash - Restricted
6 Months Ended
Jun. 30, 2019
Receivables [Abstract]  
Cash - Restricted

4. 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 credit line established pursuant to the Amended Credit Agreement (see Note 5).

v3.19.2
Line of Credit
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Line of Credit

5. LINE OF CREDIT

 

The Company maintains the Webster Credit Line which currently provides it with a credit line of $25 million in the aggregate secured by assignments of mortgages and other collateral. The Webster Credit Line contains various covenants and restrictions including, among other covenants and restrictions, limiting the amount that the Company can borrow relative to the value of the underlying collateral, maintaining various financial ratios and limitations on the terms of loans the Company makes to its customers, limiting the Company’s ability to pay dividends under certain circumstances, and limiting the Company’s ability to repurchase its common shares, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates. In addition, the Webster Credit Line contains a cross default provision which will deem any default under any indebtedness owed by us or our subsidiary, MBC Funding, as a default under the credit line.

 

Effective July 11, 2018, the Company entered into a Waiver and Amendment No. 1 to the Amended Credit Agreement (“Amendment II”) with Webster, Flushing and Mr. Ran, as guarantor. In conjunction with the execution of Amendment II, the Company also entered into an Amended and Restated Revolving Credit Note in the principal aggregate amount of $10,000,000 with Flushing (the “Amended Flushing Note”) and a Second Amended and Restated Fee Letter with Webster and Flushing, each dated July 11, 2018. Pursuant to the terms of Amendment II, the Company’s existing Webster Credit Line was increased by $5 million to $25 million in the aggregate. In addition, the interest rates relating to Webster Credit Line were amended such that the interest rates now equal (i) LIBOR plus a premium, which rate aggregated approximately 6.40% as of June 30, 2019, or (ii) a Base Rate (as defined in the Amended Credit Agreement) plus 2.25% plus a 0.5% agency fee, as chosen by the Company for each drawdown. Amendment II also permits the Company to repurchase, redeem or otherwise retire its equity securities in an amount not to exceed ten percent of our annual net income from the prior fiscal year. In addition, Mr. Ran has provided a personal guaranty to the Webster Credit Line, which shall not exceed the sum of $500,000 plus any costs relating to the enforcement of the personal guaranty.

 

The costs to establish and to amend the Webster Credit Line are being amortized over the term of the respective agreement, using the straight-line method. The amortization costs for the six months ended June 30, 2019 and 2018 were $9,702 and $13,908, respectively. The Webster Credit Line expires February 28, 2021, unless sooner terminated, and contains a provision that permits a Company option for a further extension until February 28, 2022, subject to Webster’s consent.

 

The Company was in compliance with all covenants of the Webster Credit Line, as amended, as of June 30, 2019. At June 30, 2019, the outstanding amount under the Amended Credit Agreement was $17,737,803. The interest rate on the amount outstanding fluctuates daily. The rate, including a 0.5% Agency Fee, at June 30, 2019, was approximately 6.40%.

v3.19.2
Senior Secured Notes
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Senior Secured Notes

6. SENIOR SECURED NOTES

 

On April 25, 2016, in an initial public offering, MBC Funding issued 6% senior secured notes, due April 22, 2026 (the “Notes”) in the aggregate principal amount of $6,000,000 under the Indenture, dated April 25, 2016, among MBC Funding, as Issuer, the Company, as Guarantor, and Worldwide Stock Transfer LLC, as Indenture Trustee (the “Indenture”). The Notes, having a principal amount of $1,000 each, are listed on the NYSE American and trade under the symbol “LOAN/26”. Interest accrues on the Notes commencing on May 16, 2016. The accrued interest is payable monthly in cash, in arrears, on the 15th day of each calendar month commencing June 2016.

 

Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by MBC Funding, together with MBC Funding’s cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times. To the extent the aggregate principal amount of the mortgage loans owned by MBC Funding plus MBC Funding’s cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, MBC Funding is required to repay, on a monthly basis, the principal amount of the Notes equal to the amount necessary such that, after giving effect to such repayment, the aggregate principal amount of all mortgage loans owned by MBC Funding plus, MBC Funding’s cash on hand at such time is equal to or greater than 120% of the outstanding principal amount of the Notes. For this purpose, each mortgage loan is deemed to have a value equal to its outstanding principal balance, unless the borrower is in default of its obligations.

 

MBC Funding may redeem the Notes, in whole or in part, at any time after April 22, 2019 upon at least 30 days prior written notice to the Noteholders. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest thereon up to, but not including, the date of redemption, without penalty or premium; provided that (i) if the Notes are redeemed on or after April 22, 2019 but prior to April 22, 2020, the redemption price will be 103% of the principal amount of the Notes redeemed and (ii) if the Notes are redeemed on or after April 22, 2020 but prior to April 22, 2021, the redemption price will be 101.5% of the principal amount of the Notes redeemed plus, in either case, the accrued but unpaid interest on the Notes redeemed up to, but not including, the date of redemption.

 

Each Noteholder has the right to cause MBC Funding to redeem his, her or its Notes on April 22, 2021. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest up to, but not including, the date of redemption, without penalty or premium. In order to exercise this right, the Noteholder must notify MBC Funding, in writing, no earlier than November 22, 2020 and no later than January 22, 2021. All Notes that are subject to a properly and timely notice will be redeemed on April 22, 2021. Any Noteholder who fails to make a proper and timely election will be deemed to have waived his, her or its right to have his, her or its Notes redeemed prior to the maturity date.

 

MBC Funding is obligated to offer to redeem the Notes if there occurs a “change of control” with respect to MBC Funding or the Company or if MBC Funding or the Company sell any assets unless, in the case of an asset sale, the proceeds are reinvested in the business of the seller. The redemption price in connection with a “change of control” will be 101% of the principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption. The redemption price in connection with an asset sale will be the outstanding principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption.

v3.19.2
Earnings Per Share of Common Stock
6 Months Ended
Jun. 30, 2019
Basic and diluted net income per common share outstanding:  
Earnings Per Share of Common Stock

7. EARNINGS PER SHARE OF COMMON STOCK

 

Basic and diluted earnings per share are calculated in accordance with ASC 260, “Earnings Per Share” (“ASC 260”). Under ASC 260, basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the potential dilution from the exercise of stock options and warrants for common shares using the treasury stock method. The numerator in calculating both basic and diluted earnings per common share for each period is the reported net income.

 

The denominator is based on the following weighted average number of common shares:

 

    Three Months
Ended June 30,
    Six Months
Ended June 30,
 
    2019     2018     2019     2018  
Basic weighted average common shares outstanding     9,659,317       8,111,276       9,657,557       8,110,112  
Incremental shares for assumed exercise of options and warrants     2,303       8,708       2,340       7,705  
Diluted weighted average common shares outstanding     9,661,620       8,119,984       9,659,897       8,117,817  

 

For the three and six months ended June 30, 2019, 43,959 and 43,922 stock warrants were not included in the diluted earnings per share calculation, respectively, because their effect would have been anti-dilutive. For the three and six months ended June 30, 2018, 46,054 and 47,057 vested stock options and warrants were not included in the diluted earnings per share calculation, respectively, because their effect would have been anti-dilutive.

v3.19.2
Share - Based Compensation
6 Months Ended
Jun. 30, 2019
Share-based Payment Arrangement [Abstract]  
Stock - Based Compensation

8. SHARE – BASED COMPENSATION

 

The Company measures and recognizes compensation awards for all stock option grants made to employees and directors, based on their fair value in accordance with ASC 718, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. A key provision of ASC 718 is to measure the cost of employee services received in exchange for an award of equity instruments (including stock options) based on the grant-date fair value of the award. The cost will be recognized over the service period during which an employee is required to provide service in exchange for the award (i.e., the requisite service period or vesting period). The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC 718 and ASC 505-50. All transactions with non-employees, in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more appropriately measurable.

 

Share based compensation expense recognized under ASC 718 for each of the six months ended June 30, 2019 and 2018 of $6,532 represents the amortization of the fair value of 1,000,000 restricted shares granted to the Company’s Chief Executive Officer on September 9, 2011 of $195,968, after adjusting for the effect on the fair value of the stock options related to this transaction. The fair value will be amortized over 15 years.

 

On July 31, 2014, in connection with the Company’s public offering in July 2014, the Company issued warrants to purchase up to 87,719 common shares, with an exercise price of $3.5625 per common share, to the representative of the underwriters of the offering (the “July 2014 Representative Warrants”). These warrants are exercisable at any time, and from time to time, in whole or in part, commencing on July 28, 2015 and expire on July 28, 2019. The fair value of these warrants, using the Black-Scholes option pricing model, on the date of issuance was $42,224. At June 30, 2019, July 2014 Representative Warrants to purchase up to 3,000 common shares were outstanding.

 

On May 29, 2015, in connection with the Company’s public offering in May 2015, the Company issued warrants to purchase up to 50,750 common shares, with an exercise price of $5.4875 per common share, to the representative of the underwriters of the offering (the “May 2015 Representative Warrants”). These warrants are exercisable at any time, and from time to time, in whole or in part, commencing on May 22, 2016 and expire on May 22, 2020. The fair value of these warrants, using the Black-Scholes option pricing model, on the date of issuance was $54,928. At June 30, 2019, May 2015 Representative Warrants to purchase up to 9,650 common shares were outstanding.

 

On August 15, 2016, in connection with a public offering of the Company’s common shares, the Company issued warrants to purchase up to 33,612 common shares, with an exercise price of $7.4375 per common share, to the representative of the underwriters of the offering (the “August 2016 Representative Warrants”). The warrants are exercisable at any time, and from time to time, in whole or in part, commencing on August 9, 2017 and expire on August 9, 2021. The fair value of these warrants, using the Black-Scholes option pricing model, on the date of issuance was $47,020. At June 30, 2019, all of the August 2016 Representative Warrants were outstanding.

v3.19.2
Commercial Loans (Tables)
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Schedule of Credit Risk

Credit risk profile based on loan activity as of June 30, 2019 and December 31, 2018:

 

Performing loans   Developers-
Residential
    Developers-
Commercial
    Developers-
Mixed Used
    Total outstanding
loans
 
June 30, 2019   $ 49,441,967     $ 3,060,000     $ 3,410,000     $ 55,911,967  
December 31, 2018   $ 47,301,127     $ 3,660,000     $ 3,875,000     $ 54,836,127  

v3.19.2
Earnings Per Share of Common Stock (Tables)
6 Months Ended
Jun. 30, 2019
Basic and diluted net income per common share outstanding:  
Schedule of Weighted Average Number of Common Shares

The denominator is based on the following weighted average number of common shares:

 

    Three Months
Ended June 30,
    Six Months
Ended June 30,
 
    2019     2018     2019     2018  
Basic weighted average common shares outstanding     9,659,317       8,111,276       9,657,557       8,110,112  
Incremental shares for assumed exercise of options and warrants     2,303       8,708       2,340       7,705  
Diluted weighted average common shares outstanding     9,661,620       8,119,984       9,659,897       8,117,817  

v3.19.2
Commercial Loans (Details Narrative)
6 Months Ended
Jun. 30, 2019
USD ($)
Loan term 1 year
Subsequent Balance Sheet Date [Member]  
Loans paid off $ 1,916,000
Originally Due in 2016 [Member]  
Loans receivable 360,000
Originally Due in 2017 [Member]  
Loans receivable 3,960,000
Originally Due in 2018 [Member]  
Loans receivable 4,607,000
Originally Due on or Before December 31, 2018 [Member] | Subsequent Balance Sheet Date [Member]  
Loans paid off 245,000
Construction Loans [Member]  
Principal amount committed in construction loans $ 7,349,035
v3.19.2
Commercial Loans - Schedule of Credit Risk (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Performing loans $ 55,911,967 $ 54,836,127
Developers Residential [Member]    
Performing loans 49,441,967 47,301,127
Developers Commercial [Member]    
Performing loans 3,060,000 3,660,000
Developers Mixed Used [Member]    
Performing loans $ 3,410,000 $ 3,875,000
v3.19.2
Line of Credit (Details Narrative) - USD ($)
6 Months Ended
Jul. 11, 2018
Jun. 30, 2019
Jun. 30, 2018
Amortization of financing costs   $ 47,244 $ 51,451
Amended Credit Agreement [Member]      
Maximum borrowing capacity $ 25,000,000    
Line of credit facility, interest rate description The interest rates relating to Webster Credit Line were amended such that the interest rates now equal (i) LIBOR plus a premium, which rate aggregated approximately 6.40% as of June 30, 2019, or (ii) a Base Rate (as defined in the Amended Credit Agreement) plus 2.25% plus a 0.5% agency fee The rate, including a 0.5% Agency Fee, at June 30, 2019, was approximately 6.40%.  
Line of credit facility, interest rate at period end   6.40%  
Percentage of agency fee   0.50%  
Line of credit, current   $ 17,737,803  
Amended Credit Agreement [Member] | Base Rate Plus [Member]      
Line of credit facility, interest rate at period end 2.25%    
Percentage of agency fee 0.50%    
Amended Credit Agreement [Member] | Minimum [Member]      
Credit line increased value $ 5,000,000    
Amended Credit Agreement [Member] | Flushing [Member]      
Debt instrument face amount 10,000,000    
Webster Credit Line [Member]      
Maximum borrowing capacity   25,000,000  
Amortization of financing costs   $ 9,702 $ 13,908
Line of credit, expiration date   Feb. 28, 2021  
Line of credit , expiration date description   The Webster Credit Line expires February 28, 2021, unless sooner terminated, and contains a provision that permits a Company option for a further extension until February 28, 2022, subject to Webster's consent.  
Webster Credit Line [Member] | Amended Credit Agreement [Member] | Mr. Ran [Member]      
Debt guaranteed amount $ 500,000    
v3.19.2
Senior Secured Notes (Details Narrative)
Apr. 25, 2016
USD ($)
Apr. 25, 2016
USD ($)
After April 22, 2019 But Prior to April 22, 2020 [Member]    
Debt instrument, redemption price, percentage 103.00%  
After April 22, 2020 But Prior to April 22, 2021 [Member]    
Debt instrument, redemption price, percentage 101.50%  
MBC Funding II Corp [Member]    
Debt instrument description Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by MBC Funding, together with MBC Funding's cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times. To the extent the aggregate principal amount of the mortgage loans owned by MBC Funding plus MBC Funding's cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, MBC Funding is required to repay, on a monthly basis, the principal amount of the Notes equal to the amount necessary such that, after giving effect to such repayment, the aggregate principal amount of all mortgage loans owned by MBC Funding plus, MBC Funding's cash on hand at such time is equal to or greater than 120% of the outstanding principal amount of the Notes. For this purpose, each mortgage loan is deemed to have a value equal to its outstanding principal balance, unless the borrower is in default of its obligations.  
MBC Funding II Corp [Member] | Change of Control [Member]    
Debt instrument, redemption price, percentage 101.00%  
Senior Secured Notes [Member]    
Principal amount of each note $ 1,000 $ 1,000
Debt instrument collateral, percentage 120.00% 120.00%
Senior Secured Notes [Member] | Indenture [Member]    
Debt instrument interest rate 6.00% 6.00%
Debt instrument maturity date   Apr. 22, 2026
Debt instrument face amount $ 6,000,000 $ 6,000,000
v3.19.2
Earnings Per Share of Common Stock (Details Narrative) - shares
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Basic and diluted net income per common share outstanding:        
Earnings per share, vested options and warrants 43,959 46,054 43,922 47,057
v3.19.2
Earnings Per Share of Common Stock - Schedule of Weighted Average Number of Common Shares (Details) - shares
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Basic and diluted net income per common share outstanding:        
Basic weighted average common shares outstanding 9,659,317 8,111,276 9,657,557 8,110,112
Incremental shares for assumed exercise of options and warrants 2,303 8,708 2,340 7,705
Diluted weighted average common shares outstanding 9,661,620 8,119,984 9,659,897 8,117,817
v3.19.2
Share - Based Compensation (Details Narrative) - USD ($)
6 Months Ended
Aug. 15, 2016
May 29, 2015
Jul. 31, 2014
Sep. 09, 2011
Jun. 30, 2019
Jun. 30, 2018
Share-based compensation expense         $ 6,532 $ 6,532
August 2016 Representative Warrants [Member]            
Warrants to purchase common shares 33,612          
Warrant exercise price $ 7.4375          
Warrant expire date Aug. 09, 2021          
Fair value of warrant issuance $ 47,020          
Number of warrants outstanding         33,612  
July 2014 Representative Warrants [Member]            
Warrants to purchase common shares     87,719      
Warrant exercise price     $ 3.5625      
Warrant expire date     Jul. 28, 2019      
Fair value of warrant issuance     $ 42,224      
Number of warrants outstanding         3,000  
May 2015 Representative Warrants [Member]            
Warrants to purchase common shares   50,750        
Warrant exercise price   $ 5.4875        
Warrant expire date   May 22, 2020        
Fair value of warrant issuance   $ 54,928        
Number of warrants outstanding         9,650  
Chief Executive Officer [Member]            
Share based compensation expense of restricted, shares       1,000,000    
Share based compensation expense of restricted, value       $ 195,968    
Fair value of restricted shares amortization period       15 years