# Manhattan Bridge Capital, Inc: Form 10-Q for the period ended Sep 30, 2022

- Company: [Manhattan Bridge Capital, Inc](/companies/loan.md) (CIK 1080340)
- Form: 10-Q
- Filed: 2022-10-21
- Accepted by EDGAR: Oct 21, 2022, 11:00 ET
- Period: 2022-09-30
- Accession: 0001493152-22-029274
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1080340/000149315222029274/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1080340/000149315222029274/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $2.1m | us-gaap:Revenues |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $6.3m | us-gaap:Revenues |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | $1.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | $4.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $650 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | $1.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | $4.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.11 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | $0.35 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.11 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | $0.35 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 11,494,945 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 11,494,945 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $4.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $1.9k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2022-01-01 to 2022-09-30 | $4.3m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2022-09-30 | $109.7k | us-gaap:Cash |
| Total assets | at 2022-09-30 | $74.8m | us-gaap:Assets |
| Total liabilities | at 2022-09-30 | $31.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | $43.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 22,175 characters.

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

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

The properties securing the loans are generally classified as residential or commercial real estate and, typically, are not income producing. Each loan is secured by a first mortgage lien on real estate. In addition, each loan is personally guaranteed by the principal(s) of the borrower, which guarantee may be collaterally secured by a pledge of the guarantor’s interest in the borrower. The face amount of the loans we originated during the past seven years ranged from $30,000 to a maximum of $3 million. Our lending policy limits the maximum amount of any loan to the lower of (i) 9.9% of the aggregate amount of our loan portfolio (not including the loan under consideration) and (ii) $3 million. Our loans typically have a maximum initial term of 12 months and bear interest at a fixed rate of 9% to 12% per year. In addition, we usually receive origination fees or “points” ranging from 0% to 2% of the original principal amount of the loan as well as other fees relating to underwriting and funding the loan. Interest is always payable monthly, in arrears. In the case of acquisition financing, the principal amount of the loan usually does not exceed 75% of the value of the property (as determined by an independent appraiser) and in the case of construction financing, it is typically up to 80% of construction costs. More recently, as a result of an increase in interest rates in general, our interest rate expenses, as they relate to our Webster Credit Line, have increased as well and, as a result, we are making efforts to increase the interest rates charged on our commercial loans to offset the impact on our net income.

Since commencing this business in 2007, we have made more than 1,100 loans and never foreclosed on a property. We currently manage approximately 120 loans. In addition, none of our loans have ever gone into default although sometimes we have renewed or extended our loans to enable the borrower to avoid premature sale or refinancing of the property. When we renew or extend a loan, we receive additional “points” and other fees.

Our primary business objective is to grow our loan portfolio while protecting and preserving capital in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term through dividends. We intend to achieve this objective by continuing to selectively originate loans and carefully manage our portfolio of first mortgage real estate loans in a manner designed to generate attractive risk-adjusted returns across a variety of market conditions and economic cycles. We believe that the demand for relatively small loans secured by residential and commercial real estate held for investment around the New York metropolitan market, including New Jersey and Connecticut, and in the Florida market remains relatively strong, but weakened due to continued interest-rate hikes.

Our ability to close deals quickly has created an opportunity for non-bank “hard money” real estate lenders like us to selectively originate high-quality first mortgage loans and we anticipate that this condition may persist for a number of years. However, we have observed more intense competition in our industry from both small and large lenders, which has resulted in more liquidity in the real estate markets in the geographic areas in which we operate.

We have built our business on a foundation of intimate knowledge of the New York metropolitan area real estate market combined with a disciplined credit and due diligence culture that is designed to protect and preserve capital. We believe that our flexibility in terms of meeting the needs of borrowers without compromising our standards on credit risk, our expertise, our intimate knowledge of the New York metropolitan area real estate market and our focus on newly originated first mortgage loans, has defined our success until now and should enable us to continue to achieve our objectives.

A principal source of new transactions has been repeat business from prior customers and their referral of new business to us. We also receive leads for new business from banks, brokers and a limited amount of advertising. Finally, our Chief Executive Officer also spends a significant portion of his time on new business development. We rely on our own employees, independent legal counsel, and other independent professionals to verify titles and ownership, to file liens and to consummate the transactions. Outside appraisers are used to assist us in evaluating the worth of collateral, when deemed necessary by management. We also use construction inspectors.

For the nine months ended September 30, 2022 and 2021, the total amounts of $49,241,679 and $28,534,303, respectively, have been lent, offset by collections received from borrowers, under our commercial loans of $42,255,461 and $33,058,052, respectively.

At September 30, 2022, we were committed to $7,903,853 in construction loans that can be drawn by the borrowers when certain conditions are met.

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

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

### Results of Operations

### Three months ended September 30, 2022 compared to three months ended September 30, 2021

Revenue

Total revenues for the three months ended September 30, 2022 were approximately $2,107,000 compared to approximately $1,627,000 for the three months ended September 30, 2021, an increase of $480,000 or 29.5%. The increase in revenue was due to an increase in lending operations. For the three months ended September 30, 2022 and 2021, approximately $1,678,000 and $1,323,000, respectively, of our revenues were attributable to interest income on secured commercial loans that we offer to real estate investors, and approximately $429,000 and $304,000, respectively, of our revenues were attributable to origination fees on such loans. The loans are principally secured by collateral consisting of real estate and accompanied by personal guarantees from the principals of the borrowers.

Interest and amortization of deferred financing costs

Interest and amortization of deferred financing costs for the three months ended September 30, 2022 were approximately $497,000 compared to approximately $185,000 for the three months ended September 30, 2021, an increase of $312,000, or 168.6%. The increase is primarily attributable to the increase in interest expense due to higher LIBOR rates relating to the use of the Webster Credit Line in order to support our ability to increase loan originations (See Note 5 to the consolidated financial statements included elsewhere in the Quarterly Report). In addition, the outstanding balance of the Webster Credit Line was significantly reduced during the third quarter of 2021 due to a public offering of our common shares in July 2021.

General and administrative expenses

General and administrative expenses for the three months ended September 30, 2022 were approximately $377,000 compared to approximately $335,000 for the three months ended September 30, 2021, an increase of $42,000, or 12.5%. The increase is primarily attributable to increases in payroll, appraisal and travel expenses.

Net income

Net income for the three months ended September 30, 2022 was approximately $1,237,000 compared to approximately $1,110,000 for the three months ended September 30, 2021, an increase of $127,000, or 11.4%. This increase is primarily attributable to the increase in revenue, partially offset by the increase in interest expense.

### Nine months ended September 30, 2022 compared to nine months ended September 30, 2021

#### Revenue

Total revenues for the nine months ended September 30, 2022 were approximately $6,339,000 compared to approximately $5,070,000 for the nine months ended September 30, 2021, an increase of $1,269,000, or 25.0%. The increase in revenue was due to an increase in lending operations. For the nine months ended September 30, 2022 and 2021, revenues of approximately $4,934,000 and $4,190,000, respectively, were attributable to interest income on the secured commercial loans that we offer to real estate investors, and approximately $1,405,000 and $880,000, respectively, of our revenues were attributable to origination fees on such loans. The loans are principally secured by collateral consisting of real estate and accompanied by personal guarantees from the principals of the borrowers.

Interest and amortization of deferred financing costs

Interest and amortization of deferred financing costs for the nine months ended September 30, 2022 were approximately $1,205,000 compared to approximately $819,000 for the nine months ended September 30, 2021, an increase of $386,000, or 47.1%. The increase is primarily attributable to the increase in interest expense due to higher LIBOR rates relating to the use of the Webster Credit Line in order to support our ability to increase loan originations (See Note 5 to the consolidated financial statements included elsewhere in the Quarterly Report). In addition, the outstanding balance of the Webster Credit Line was significantly reduced during the third quarter of 2021 due to a public offering of our common shares in July 2021.

General and administrative expenses

General and administrative expenses for the nine months ended September 30, 2022 were approximately $1,125,000 compared to approximately $984,000 for the nine months ended September 30, 2021, an increase of $141,000, or 14.3%. The increase is primarily attributable to increases in payroll, advertising, appraisal, travel and Nasdaq listing expenses, partially offset by a decrease in insurance expenses.

Net income

Net income for the nine months ended September 30, 2022 was approximately $4,018,000 compared to approximately $3,274,000 for the nine months ended September 30, 2021, an increase of $744,000, or 22.7%. This increase is primarily attributable to the increase in revenue, partially offset by the increases in interest expense and in general and administrative expenses.

### Liquidity and Capital Resources

At September 30, 2022, we had cash of approximately $110,000 (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) compared to approximately $143,000 at December 31, 2021.

For the nine months ended September 30, 2022, net cash provided by operating activities was approximately $4,019,000, compared to approximately $3,150,000 for the nine months ended September 30, 2021. The increase in net cash provided by operating activities primarily resulted from the increases in net income and in accounts payable and accrued expenses.

For the nine months ended September 30, 2022, net cash used in investing activities was approximately $6,988,000, compared to approximately $4,524,000 of net cash provided by investing activities for the nine months ended September 30, 2021. Net cash used in investing activities for the nine months ended September 30, 2022 mainly consisted of the issuance of commercial loans of approximately $49,242,000, offset by the collection of our commercial loans of approximately $42,255,000. During the period ended September 30, 2021, net cash provided by investing activities consisted of the collection of our commercial loans of approximately $33,058,000, offset by the issuance of commercial loans of approximately $28,534,000.

For the nine months ended September 30, 2022, net cash provided by financing activities was approximately $3,369,000, compared to approximately $8,024,000 of net cash used in financing activities for the nine months ended September 30, 2021. Net cash provided by financing activities for the nine months ended September 30, 2022 reflects the net proceeds from the Webster Credit Line of approximately $7,716,000, offset by dividend payments of approximately $4,311,000 and deferred financing costs of approximately $36,000. Net cash used in financing activities for the nine months ended September 30, 2021 reflects the repayment of the Webster Credit Line of an aggregate of approximately $16,825,000 and the dividend payments of approximately $3,553,000, offset by the net proceeds from our July 2021 public offering of approximately $12,354,000.

Our Amended and Restated Credit and Security Agreement with Webster, Flushing Bank and Mizrahi provides for the Webster Credit Line. Currently, the Webster Credit Line provides us with a credit line of $32.5 million in the aggregate until February 28, 2023, secured by assignments of mortgages and other collateral. We are currently working on extending the Webster Credit Line for an additional three years. The Webster Credit Line contains various covenants and restrictions including covenants limiting the amount that the Company can borrow relative to the value of the underlying collateral, maintaining various financial ratios and limitations on the terms of loans the Company makes to its customers, limiting the Company’s ability to pay dividends under certain circumstances, and limiting the Company’s ability to repurchase its common shares, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates. In addition, the Webster Credit Line contains a cross default provision which will deem any default under any indebtedness owed by us or our subsidiary, MBC Funding II, as a default under the credit line.

The interest rates relating to the Webster Credit Line equal (i) LIBOR plus a premium, which rate aggregated approximately 7.14%, including a 0.5% agency fee, as of September 30, 2022, or (ii) a Base Rate (as defined in the Amended and Restated Credit Agreement) plus 2.25% plus a 0.5% agency fee, as chosen by the Company for each drawdown. Under the Amended and Restated Credit Agreement, the Company may repurchase, redeem or otherwise retire its equity securities in an amount not to exceed ten percent of our annual net income from the prior fiscal year. Further, the Company may issue up to $20 million in bonds through its subsidiary, of which not more than $10 million of such bonds may be secured by mortgage notes receivable, and provided that the terms and conditions of such bonds are approved by Webster, subject to its reasonable discretion. In addition, Mr. Ran has provided a personal guaranty to the Webster Credit Line, which shall not exceed the sum of $500,000 plus any costs relating to the enforcement of the personal guaranty.

On March 7, 2022, we entered into the Waiver, with respect to the Amended and Restated Credit Agreement, with the Lenders and Mr. Ran, as guarantor, providing the Company with a waiver of its covenant with respect to maintaining its fixed charge coverage ratio for the period ended December 31, 2021. In addition, the Waiver also provided that an amount of $700,000 of distributions and/or dividends paid during the quarter ended December 31, 2021 shall be excluded from the calculation of fixed charge coverage ratio for the fiscal quarters ending March 31, 2022, June 30, 2022 and September 30, 2022.

On April 25, 2022, we entered into an amendment, with respect to the Amended and Restated Credit Agreement with the Lenders and Mr. Ran, as guarantor, pursuant to which the parties agreed to amend the Amended and Restated Credit Agreement to provide as follows: (i) to increase the limit on individual loans from $1 million to $2 million; (ii) to increase the concentration of any mortgagor (together with guarantors and other related entities and affiliates) from $2.5 million to $5 million; and (iii) to permit us to originate loans in the state of Florida in any county south of, and including, Palm Beach and Lee counties, in an amount up to $4.875 million.

Except as set forth in the preceding paragraphs, we were in compliance with all covenants of the Webster Credit Line, as amended, as of September 30, 2022. At September 30, 2022, the outstanding amount under the Amended and Restated Credit Agreement was $23,361,607. The interest rate on the amount outstanding fluctuates daily. The rate, including a 0.5% agency fee, was approximately 7.14% as of September 30, 2022.

MBC Funding II has $6,000,000 of outstanding principal amount of Notes. The Notes mature on April 22, 2026, unless redeemed earlier, and accrue interest at a rate of 6% per annum commencing on May 16, 2016 and will be payable monthly, in arrears, in cash, on the 15th day of each calendar month, commencing June 2016.

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

The Notes are secured by a first priority lien on all of MBC Funding II’s assets, including, primarily, mortgage notes, mortgages and other transaction documents entered into in connection with first mortgage loans originated and funded by us, which MBC Funding II acquired from MBC pursuant to an asset purchase agreement. MBC Funding II may redeem the Notes, in whole or in part, at any time after April 22, 2019 upon at least 30 days prior written notice to the noteholders. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest thereon up to, but not including, the date of redemption, without penalty or premium. No Notes were redeemed by MBC Funding II as of September 30, 2022.

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

We guarantee MBC Funding II’s obligations under the Notes, which are secured by our pledge of 100% of the outstanding common shares of MBC Funding II that we own.

The interest rate on the Notes is fixed and the interest rate on the Webster Credit Line is adjustable. The continued increase in LIBOR rates adversely impacts our interest costs. We experienced a slowdown in the deployment of capital and lower demand for new loans, which resulted in lower origination fees. We are increasing the interest rates charged on our commercial loans in order to offset our increased interest costs. In addition, most of our loans contain an adjustable interest rate clause allowing us to charge no less than the prime rate plus 3% on the outstanding loans. We also believe that we benefit from our low equity-to-debt ratio in the current market condition.

We anticipate that our current cash balances and the Amended and Restated Credit Agreement, as described above, together with our cash flows from operations will be sufficient to fund our operations for the next 12 months. In addition, from time to time, we receive short term unsecured loans from our executive officers and others in order to provide us with the flexibility necessary to maintain a steady deployment of capital. However, we expect our working capital requirements to increase over the next 12 months as we continue to strive for growth.

## Controls and procedures

As filed, 1,367 characters.

### (a) Evaluation and Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2022 (the “Evaluation Date”). Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) are accumulated and communicated to our management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

### (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, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,909 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2021 Annual Report and in Part II, “Item 1A. Risk Factors” in our Quarterly Report, which could materially affect our business, financial condition or future results.

There have been no material changes from the risk factors previously disclosed in our 2021 Annual Report and our Quarterly Report, except as noted below.

### Rising interest rates may reduce our profitability and may cause losses.

Our borrowings under the Webster Credit Line are subject to LIBOR. In addition, in the future we may enter into financing arrangements that may be determined by reference to floating rates, such as LIBOR (or any replacement rate such as SOFR) or a Treasury index, and the amount of the cost of borrowing may depend on the level and movement of interest rates. In 2022, the U.S. Federal Reserve raised short term interest rates several times and has suggested additional interest rate increases may come in subsequent quarters. The continue increases in LIBOR rates adversely impact our interest costs. We experienced a slowdown in the deployment of capital and lower demand for new loans, which resulted in lower origination fees. We are increasing the interest rates charged on our commercial loans in order to offset our increased interest costs. In addition, most of our loans contain an adjustable interest rate clause allowing us to charge no less than the prime rate plus 3% on the outstanding loans. We also believe that we benefit from our low equity-to-debt ratio in the current market condition. However, in the event of additional increases in interest rates, our borrowing costs would increase further which would adversely affect our results of operations and financial condition and may negatively impact our distributions to shareholders.

Filed Oct 21, 2022.
Source: SEC EDGAR, the filing index for accession 0001493152-22-029274. Last ingested by Listed: Oct 24, 2026, 15:02 ET. No prices; not investment advice.