UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(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 | ||
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. ☒
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). ☒
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 | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
☒
As of October 20, 2021, the Issuer had a total of shares of Common Stock, $.001 par value per share, outstanding.
MBC FUNDING II CORP.
TABLE OF CONTENTS
| 1 |
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 risk factors discussed in more detail in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as may be supplemented or amended from time to time, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 in this report. 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. 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.
The terms “we”, “our”, “us”, or any derivative thereof, as used herein refer to MBC Funding II Corp., a New York corporation, and its predecessors.
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MBC FUNDING II CORP.
BALANCE SHEETS
| September 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | (audited) | |||||||
| Assets | ||||||||
| Loans receivable | $ | $ | ||||||
| Cash | ||||||||
| Interest receivable on loans | ||||||||
| Prepaid expense | ||||||||
| Due from parent company | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholder’s Equity | ||||||||
| Liabilities: | ||||||||
| Senior secured notes (net of deferred financing costs of $ | $ | $ | ||||||
| Due to parent company | ||||||||
| Accrued expenses | ||||||||
| Total liabilities | ||||||||
| Stockholder’s equity: | ||||||||
| Common shares - $ par value; authorized, issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total stockholder’s equity | ||||||||
| Total liabilities and stockholder’s equity | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
| 3 |
MBC FUNDING II CORP.
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Interest income from loans | $ | $ | $ | $ | ||||||||||||
| Total revenue | ||||||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Interest and amortization of deferred financing costs | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total operating costs and expenses | ||||||||||||||||
| Income before income tax expense | ||||||||||||||||
| Income tax expense | ( | ) | ( | ) | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these financial statements.
| 4 |
MBC FUNDING II CORP.
STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
(unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021
| Common Stock | Additional | Retained | ||||||||||||||||||
| Shares | Amount | Paid in Capital | Earnings | Totals | ||||||||||||||||
| Balance, July 1, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Net income for the period | ||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ||||||||||||||||
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020
| Common Stock | Additional | Retained | ||||||||||||||||||
| Shares | Amount | Paid in Capital | Earnings | Totals | ||||||||||||||||
| Balance, July 1, 2020 | $ | $ | $ | $ | ||||||||||||||||
| Net income for the period | ||||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | ||||||||||||||||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
| Common Stock | Additional | Retained | ||||||||||||||||||
| Shares | Amount | Paid in Capital | Earnings | Totals | ||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Net income for the period | ||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ||||||||||||||||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
| Common Stock | Additional | Retained | ||||||||||||||||||
| Shares | Amount | Paid in Capital | Earnings | Totals | ||||||||||||||||
| Balance, January 1, 2020 | $ | $ | $ | $ | ||||||||||||||||
| Net income for the period | ||||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| 5 |
MBC FUNDING II CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustment to reconcile net income to net cash provided by operating activities | ||||||||
| Amortization of deferred financing costs | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Interest receivable on loans | ( | ) | ||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Repayment of/advances to amounts due to/from parent company, net | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental Cash Flow Information: | ||||||||
| Taxes paid during the period | $ | $ | ||||||
| Interest paid during the period | $ | $ | ||||||
| Noncash Financing and Investing Activities: | ||||||||
| Assignments of loans from parent company | $ | $ | ||||||
| Assigned loans repaid to parent company by borrowers | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
| 6 |
MBC FUNDING II CORP.
NOTES TO FINANCIAL STATEMENTS
September 30, 2021
1. THE COMPANY
The accompanying unaudited financial statements have been prepared by MBC Funding II Corp. (the “Company”), a New York corporation, formed in December 2015 as a wholly-owned subsidiary of Manhattan Bridge Capital, Inc., a New York corporation (“MBC”), 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. Results of operations for the interim period are not necessarily indicative of the operating results to be attained in the entire fiscal year.
The preparation of 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.
Interest income from mortgage loans held by the Company is recognized, as earned, over the loan period. Costs incurred in connection with the issuance of the 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.
2. RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the Company’s financial statements.
3. SENIOR SECURED NOTES
The
Notes are 6% senior secured notes, due
The Company may redeem the Notes, in whole or in part, at any time after April 22, 2019 upon at least 30 days prior written notice to the Noteholders. No Notes were redeemed by the Company as of September 30, 2021. Each Noteholder had the right to cause the Company to redeem his, her or its Notes on April 22, 2021 by notifying the Company in writing, no earlier than November 22, 2020 and no later than January 22, 2021. No Noteholder exercised such right during the required time frame and as such the Notes are no longer redeemable by the Noteholders.
| 7 |
The
Company is obligated to offer to redeem the Notes if there occurs a “change of control” with respect to the Company or MBC
or if the Company or MBC 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
4. COMMERCIAL LOANS
The
Company purchased from MBC a pool of mortgage loans, originated and funded by MBC, each of which is secured by first priority liens on
real property, free and clear of all liens and other security interests (see Note 3). To the extent any of the mortgages are satisfied
in full, such mortgages will be replaced with one or more mortgages with similar aggregate principal amount. At September 30, 2021, the
pool of mortgage loans is comprised of
Credit risk profile as of September 30, 2021 and December 31, 2020:
| Performing loans | Developers-Residential | Developers- Commercial | Developers-Mixed Used | Total outstanding loans | ||||||||||||
| September 30, 2021 | $ | $ | $ | $ | ||||||||||||
| December 31, 2020 | $ | $ | $ | $ | ||||||||||||
At
September 30, 2021, loans receivable from one borrower represented
At
December 31, 2020, loans receivable from three borrowers represented
5. COVID-19
As a result of the COVID-19 pandemic, the Company may experience difficulties collecting monthly interest on time from its borrowers, property values may decline and certain of its loans may need to be extended. To date, the Company and MBC have not been materially impacted by the COVID-19 pandemic and will continue to closely monitor the impact of the COVID-19 pandemic on all aspects of their businesses. If the COVID-19 pandemic worsens in the geographic areas in which MBC operates, the pandemic could materially affect the Company’s financial and operational results.
********
| 8 |
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 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 wholly-owned subsidiary of Manhattan Bridge Capital, Inc., a New York corporation (“MBC”), and were formed in December 2015 specifically for the purpose of the initial public offering (“IPO”) of the Notes (described below). On April 25, 2016, we sold $6,000,000 aggregate principal amount of our 6% Senior Secured Notes, due April 22, 2026 (the “Notes”), in our IPO for net proceeds of $5,200,000, after deducting the underwriting discounts and commissions and other offering expenses. The Notes are secured by a first priority lien on all of our assets, including, primarily, mortgage notes, mortgages and other transaction documents entered into in connection with first mortgage loans originated and funded by MBC, which we acquired from MBC pursuant to an asset purchase agreement. Under the terms of the indenture governing the Notes (the “Indenture”), the aggregate outstanding principal balance of the mortgage loans held by us, together with our cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times until the Notes are paid in full. In addition, MBC has guaranteed our obligations under the Notes and has secured that guaranty with a pledge of all of our outstanding common shares.
The Notes are listed on the NYSE American and trade under the symbol “LOAN/26”.
To the extent any of the mortgages acquired from MBC are satisfied in full, such mortgages will be replaced with one or more mortgages with similar aggregate principal amount. At September 30, 2021, the pool of mortgage loans is comprised of 21 loans with an aggregate outstanding principal balance of $7,826,250.
Prior to the consummation of the IPO on April 25, 2016, we did not have any material operations. As of April 2016, we collect payments of interest on the mortgages we hold and use those funds to make the required interest payments to the holders of the Notes and certain operating expenses. Any excess cash will be distributed to MBC or held by us to be used for working capital and general corporate purposes.
Results of Operations
Three months ended September 30, 2021 compared to three months ended September 30, 2020
Total Revenue
Total revenues for the three months ended September 30, 2021 and 2020 of approximately $204,000 and $207,000, respectively, represent interest income on the secured commercial loans that we purchased from MBC. The decrease in revenue was primarily attributable to lower interest rates charged on loans due to market conditions.
Interest and amortization of deferred financing costs
Interest and amortization of deferred financing costs for each of the three months ended September 30, 2021 and 2020 of approximately $109,000 are attributable to the issuance of the Notes.
General and administrative expenses
General and administrative expenses for each of the three months ended September 30, 2021 and 2020 of approximately $4,000 are comprised of fees paid to the Indenture trustee and NYSE American LLC, as well as bank fees.
Nine months ended September 30, 2021 compared to nine months ended September 30, 2020
Total Revenue
Total revenues for the nine months ended September 30, 2021 and 2020 of approximately $617,000 and $632,000, respectively, represent interest income on the secured commercial loans that we purchased from MBC. The decrease in revenue was primarily attributable to lower interest rates charged on loans due to market conditions.
Interest and amortization of deferred financing costs
Interest and amortization of deferred financing costs for each of the nine months ended September 30, 2021 and 2020 of approximately $326,000 are attributable to the issuance of the Notes.
General and administrative expenses
General and administrative expenses for each of the nine months ended September 30, 2021 and 2020 of approximately $11,000 are comprised of fees paid to the Indenture trustee and NYSE American LLC, as well as bank fees.
| 9 |
Liquidity and Capital Resources
At September 30, 2021, we had cash of approximately $62,000 compared to cash of approximately $49,000 at December 31, 2020.
Net cash provided by operating activities for the nine months ended September 30, 2021 was approximately $355,000, compared to approximately $344,000 for the nine months ended September 30, 2020. The increase in net cash provided by operating activities primarily resulted from the decrease in interest receivable on loans, partially offset by the reduction in net income. Net cash provided by operating activities for the nine months ended September 30, 2021 and 2020 primarily resulted from our interest income and amortization of deferred financing costs.
Net cash used in financing activities for the nine months ended September 30, 2021 was approximately $342,000, compared to approximately $349,000 for the nine months ended September 30, 2020. The decrease in net cash used in financing activities primarily resulted from the reduction in net income. Net cash used in financing activities for the nine months ended September 30, 2021 and 2020 reflected the repayment of amounts due to and additional advances to MBC in connection with loans purchased from MBC.
We had no cash from or used in investing activities for the nine months ended September 30, 2021 or 2020.
Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by the Company, together with the Company’s cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times.
We anticipate that our current cash balances together with our cash flows from operations will be sufficient to fund our operations for the next 12 months.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. CONTROLS AND PROCEDURES
(a) Evaluation and Disclosure Controls and Procedures
Our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2021 (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 our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 10 |
PART II OTHER INFORMATION
Item 6. EXHIBITS
| Exhibit No. | Description | |
| 31.1 | Chief Executive Officer Certification under Rule 13a-14 | |
| 31.2 | Chief Financial Officer Certification under Rule 13a-14 | |
| 32.1* | Chief Executive Officer Certification pursuant to 18 U.S.C. section 1350 | |
| 32.2* | Chief Financial Officer Certification pursuant to 18 U.S.C. section 1350 | |
| 101.INS | XBRL Instance Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Schema Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). |
* Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.
| 11 |
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.
| MBC Funding II Corp. (Registrant) | ||
| Date: October 20, 2021 | By: | /s/ Assaf Ran |
| Assaf Ran, President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: October 20, 2021 | By: | /s/ Vanessa Kao |
| Vanessa Kao, Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| 12 |
EXHIBIT 31.1
CERTIFICATION
I, Assaf Ran, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MBC Funding II Corp.;
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: October 20, 2021 | |
| /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 MBC Funding II Corp.;
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: October 20, 2021 | |
| /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 MBC Funding II Corp. (the “Company”) for the period ended September 30, 2021 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: October 20, 2021 | |
| /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 MBC Funding II Corp. (the “Company”) for the period ended September 30, 2021 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: October 20, 2021 | |
| /s/ Vanessa Kao | |
| Vanessa Kao | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
Balance Sheets - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Assets | ||
| Loans receivable | $ 7,826,250 | $ 7,784,712 |
| Cash | 62,262 | 48,913 |
| Interest receivable on loans | 44,197 | 65,887 |
| Prepaid expense | 1,250 | |
| Due from parent company | 224,431 | |
| Total assets | 8,158,390 | 7,899,512 |
| Liabilities: | ||
| Senior secured notes (net of deferred financing costs of $341,013 and $397,327, respectively) | 5,658,987 | 5,602,673 |
| Due to parent company | 76,138 | |
| Accrued expenses | 15,000 | 15,000 |
| Total liabilities | 5,673,987 | 5,693,811 |
| Stockholder’s equity: | ||
| Common shares - $.001 par value; 100 authorized, issued and outstanding | ||
| Additional paid-in capital | 100 | 100 |
| Retained earnings | 2,484,303 | 2,205,601 |
| Total stockholder’s equity | 2,484,403 | 2,205,701 |
| Total liabilities and stockholder’s equity | $ 8,158,390 | $ 7,899,512 |
Balance Sheets (Parenthetical) - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Deferred financing costs | $ 341,013 | $ 397,327 |
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 100 | 100 |
| Common stock, shares issued | 100 | 100 |
| Common stock, shares outstanding | 100 | 100 |
Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
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| Income Statement [Abstract] | ||||
| Interest income from loans | $ 204,264 | $ 206,734 | $ 616,673 | $ 631,751 |
| Total revenue | 204,264 | 206,734 | 616,673 | 631,751 |
| Operating costs and expenses: | ||||
| Interest and amortization of deferred financing costs | 108,771 | 108,771 | 326,314 | 326,314 |
| General and administrative expenses | 3,855 | 3,890 | 11,010 | 11,020 |
| Total operating costs and expenses | 112,626 | 112,661 | 337,324 | 337,334 |
| Income before income tax expense | 91,638 | 94,073 | 279,349 | 294,417 |
| Income tax expense | (647) | (645) | ||
| Net income | $ 91,638 | $ 94,073 | $ 278,702 | $ 293,772 |
THE COMPANY |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| THE COMPANY | 1. THE COMPANY
The accompanying unaudited financial statements have been prepared by MBC Funding II Corp. (the “Company”), a New York corporation, formed in December 2015 as a wholly-owned subsidiary of Manhattan Bridge Capital, Inc., a New York corporation (“MBC”), 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. Results of operations for the interim period are not necessarily indicative of the operating results to be attained in the entire fiscal year.
The preparation of 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.
Interest income from mortgage loans held by the Company is recognized, as earned, over the loan period. Costs incurred in connection with the issuance of the 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 was formed in December 2015 by MBC specifically for the purpose of conducting an initial public offering (“IPO”) of certain notes. On April 25, 2016, the Company completed the IPO of its 6% senior secured notes due April 22, 2026 (the “Notes”). Prior to the consummation of the IPO, the Company did not have any material operations. As of April 2016, the Company collects payments of interest on the mortgages it holds and uses those funds to make the required interest payments to the holders of the Notes (the “Noteholders”) and certain operating expenses.
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RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Accounting Changes and Error Corrections [Abstract] | |
| RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS | 2. RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the Company’s financial statements.
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SENIOR SECURED NOTES |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Debt Disclosure [Abstract] | |
| SENIOR SECURED NOTES | 3. SENIOR SECURED NOTES
The Notes are 6% senior secured notes, due April 22, 2026, and have a principal amount of $1,000 each. On April 25, 2016, the Company issued Notes in the IPO in the aggregate principal amount of $6,000,000 under the Indenture, dated April 25, 2016, among the Company, as Issuer, MBC, as Guarantor, and Worldwide Stock Transfer LLC (“Worldwide”), as Indenture Trustee (the “Indenture”). The Notes 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 the Company, together with the Company’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 the Company plus the Company’s cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, the Company 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 the Company plus, the Company’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.
The Company may redeem the Notes, in whole or in part, at any time after April 22, 2019 upon at least 30 days prior written notice to the Noteholders. No Notes were redeemed by the Company as of September 30, 2021. Each Noteholder had the right to cause the Company to redeem his, her or its Notes on April 22, 2021 by notifying the Company in writing, no earlier than November 22, 2020 and no later than January 22, 2021. No Noteholder exercised such right during the required time frame and as such the Notes are no longer redeemable by the Noteholders.
The Company is obligated to offer to redeem the Notes if there occurs a “change of control” with respect to the Company or MBC or if the Company or MBC 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.
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COMMERCIAL LOANS |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| COMMERCIAL LOANS | 4. COMMERCIAL LOANS
The Company purchased from MBC a pool of mortgage loans, originated and funded by MBC, each of which is secured by first priority liens on real property, free and clear of all liens and other security interests (see Note 3). To the extent any of the mortgages are satisfied in full, such mortgages will be replaced with one or more mortgages with similar aggregate principal amount. At September 30, 2021, the pool of mortgage loans is comprised of 21 loans with an aggregate outstanding principal balance of $7,826,250. At December 31, 2020, the pool of mortgage loans was comprised of 22 loans with an aggregate outstanding principal balance of $7,784,712.
The loans typically have a maximum initial term of 12 months, and bear interest at a fixed rate of 9% to 13% per year, and provide for receipt of interest only during the term of the loan and a balloon payment at the end of the term.
Credit risk profile as of September 30, 2021 and December 31, 2020:
At September 30, 2021, loans receivable from one borrower represented 22.6% of total loans receivable.
At December 31, 2020, loans receivable from three borrowers represented 17.8% of total loans receivable. One individual personally guarantees all three loans and is the sole owner of two of those borrowers and a partial owner of the other borrower. In addition, loans receivable from two other borrowers represented 13.6% of total loans receivable. One individual personally guarantees both loans and is the sole owner of one of the borrowers and a partial owner of the other borrower.
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COVID-19 |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Covid-19 | |
| COVID-19 | 5. COVID-19
As a result of the COVID-19 pandemic, the Company may experience difficulties collecting monthly interest on time from its borrowers, property values may decline and certain of its loans may need to be extended. To date, the Company and MBC have not been materially impacted by the COVID-19 pandemic and will continue to closely monitor the impact of the COVID-19 pandemic on all aspects of their businesses. If the COVID-19 pandemic worsens in the geographic areas in which MBC operates, the pandemic could materially affect the Company’s financial and operational results. |
COMMERCIAL LOANS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF CREDIT RISK |
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THE COMPANY (Details Narrative) - 6% Senior Secured Notes [Member] |
Apr. 25, 2016 |
|---|---|
| Debt Instrument [Line Items] | |
| Initial public offering for debt description | The Company was formed in December 2015 by MBC specifically for the purpose of conducting an initial public offering (“IPO”) of certain notes. On April 25, 2016, the Company completed the IPO of its 6% senior secured notes due April 22, 2026 (the “Notes”). |
| Debt instrument maturity date | Apr. 22, 2026 |
SENIOR SECURED NOTES (Details Narrative) - USD ($) |
9 Months Ended | ||
|---|---|---|---|
Apr. 25, 2016 |
Sep. 30, 2021 |
Dec. 31, 2020 |
|
| Debt Instrument [Line Items] | |||
| Senior notes | $ 5,658,987 | $ 5,602,673 | |
| Senior secured notes, required security description | The loans typically have a maximum initial term of 12 months, and bear interest at a fixed rate of 9% to 13% per year, and provide for receipt of interest only during the term of the loan and a balloon payment at the end of the term. | ||
| Change Of Control [Member] | |||
| Debt Instrument [Line Items] | |||
| Debt instrument, redemption price, percentage | 101.00% | ||
| 6% Senior Secured Notes [Member] | |||
| Debt Instrument [Line Items] | |||
| Debt instrument maturity date | Apr. 22, 2026 | ||
| Debt instrument, face amount | $ 1,000 | ||
| Senior secured notes, required security description | Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by the Company, together with the Company’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 the Company plus the Company’s cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, the Company 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 the Company plus, the Company’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. | ||
| 6% Senior Secured Notes [Member] | Indenture [Member] | |||
| Debt Instrument [Line Items] | |||
| Senior notes | $ 6,000,000 |
SCHEDULE OF CREDIT RISK (Details) - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Total outstanding loans | $ 7,826,250 | $ 7,784,712 |
| Developers-Residential [Member] | ||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Total outstanding loans | 6,907,250 | 6,219,850 |
| Developers-Commercial [Member] | ||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Total outstanding loans | 375,000 | 1,564,862 |
| Developers-Mixed Used [Member] | ||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Total outstanding loans | $ 544,000 |