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What changed in MANHATTAN BRIDGE CAPITAL, INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MANHATTAN BRIDGE CAPITAL, INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+177 added−184 removedSource: 10-K (2024-03-11) vs 10-K (2023-03-10)

Top changes in MANHATTAN BRIDGE CAPITAL, INC's 2023 10-K

177 paragraphs added · 184 removed · 153 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

28 edited+3 added−2 removed72 unchanged
Biggest changeThe following table sets forth information regarding the types of properties securing our mortgage loans outstanding at December 31, 2022 and 2021, and the interest earned in each category (dollars in thousands): 2022 2021 Number of Loans Interest Earned Percentage Number of Loans Interest Earned Percentage Residential 108 $ 3,940 80 % 120 $ 3,406 89 % Commercial 8 721 15 % 6 289 7 % Mixed Use 6 240 5 % 5 150 4 % Total 122 $ 4,901 100 % 131 $ 3,845 100 % Our Origination Process and Underwriting Criteria We primarily rely on our relationships with existing and former borrowers, real estate investors, real estate brokers, loan initiators, and mortgage brokers to originate loans.
Biggest changeAt December 31, 2023 and 2022, no single loan, borrower or group of affiliated borrowers accounted for more than 10% of our loan portfolio. 9 The following table sets forth information regarding the types of properties securing our mortgage loans outstanding at December 31, 2023 and 2022, and the interest earned, on the active loans, in each category (dollars in thousands): 2023 2022 Number of Loans Interest Earned Percentage Number of Loans Interest Earned Percentage Residential 111 $ 4,504 84 % 108 $ 3,940 80 % Commercial 6 768 14 % 8 721 15 % Mixed Use 3 90 2 % 6 240 5 % Total 120 $ 5,362 100 % 122 $ 4,901 100 % Our Origination Process and Underwriting Criteria We primarily rely on our relationships with existing and former borrowers, real estate investors, real estate brokers, loan initiators, and mortgage brokers to originate loans.
Our lending policy limits the maximum amount of any loan to the lower of (i) 9.9% of the aggregate amount of our loan portfolio (not including the loan under consideration) and (ii) $3.5 million. Our loans typically have a maximum initial term of 12 months and bear interest at a fixed rate of 9% to 12% per year.
Our lending policy limits the maximum amount of any loan to the lower of (i) 9.9% of the aggregate amount of our loan portfolio (not including the loan under consideration) and (ii) $3.5 million. Our loans typically have a maximum initial term of 12 months and bear interest at a fixed rate of 9% to 13.5% per year.
Our loan commitments are generally issued subject to receipt by us of title documentation and title report, in a form satisfactory to us, for the underlying property. We require a personal guarantee from the principal or principals of the borrower. Our Current Financing Strategies Our financing strategies are critical to the success and growth of our business.
Our loan commitments are generally issued subject to receipt by us of title documentation and title report, in a form satisfactory to us, for the underlying property. We require a personal guarantee from the principal or principals of the borrower. 10 Our Current Financing Strategies Our financing strategies are critical to the success and growth of our business.
In conducting our due diligence, we rely, in part, on third party professionals and experts including appraisers, title insurers and attorneys. 10 Before a loan commitment is issued, the loan must be reviewed and approved by our Chief Executive Officer.
In conducting our due diligence, we rely, in part, on third party professionals and experts including appraisers, title insurers and attorneys. Before a loan commitment is issued, the loan must be reviewed and approved by our Chief Executive Officer.
Government securities and cash items) on an unconsolidated basis, which we refer to as the 40% test. 13 We rely on the exception set forth in Section 3(c)(5)(C) of the Investment Company Act which excludes from the definition of investment company “[a] ny person who is not engaged in the business of issuing redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates, and who is primarily engaged in one or more of the following businesses...
Government securities and cash items) on an unconsolidated basis, which we refer to as the 40% test. 12 We rely on the exception set forth in Section 3(c)(5)(C) of the Investment Company Act which excludes from the definition of investment company “[a]ny person who is not engaged in the business of issuing redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates, and who is primarily engaged in one or more of the following businesses...
In addition, during 2022 we used outside lawyers and other independent professionals to verify titles and ownership, to file liens and to consummate the transactions. Outside appraisers were used to assist management in evaluating the worth of collateral, when deemed necessary by management. We also used construction inspectors as well as mortgage brokers and deal initiators.
In addition, during 2023 we used outside lawyers and other independent professionals to verify titles and ownership, to file liens and to consummate the transactions. Outside appraisers were used to assist management in evaluating the worth of collateral, when deemed necessary by management. We also used construction inspectors as well as mortgage brokers and deal initiators.
The protective steps we have taken may not deter misappropriation of our proprietary information. These claims, if meritorious, could require us to license other rights or subject us to damages and, even if not meritorious, could result in the expenditure of significant financial and managerial resources on our part. 12 Employees As of December 31, 2022, we employed five employees.
The protective steps we have taken may not deter misappropriation of our proprietary information. These claims, if meritorious, could require us to license other rights or subject us to damages and, even if not meritorious, could result in the expenditure of significant financial and managerial resources on our part. Employees As of December 31, 2023, we employed five employees.
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. 4 Since commencing our business in 2007, we have never foreclosed on a property, although sometimes we have renewed or extended the term of a loan to enable the borrower to avoid premature sale or refinancing of the property.
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. 4 Since commencing our business in 2007, except as set forth below, we have never foreclosed on a property, although sometimes we have renewed or extended the term of a loan to enable the borrower to avoid premature sale or refinancing of the property.
Many of these competitors enjoy competitive advantages over us, including greater name recognition, established lending relationships with customers, financial resources, and access to capital. However, we have seen less competition and less liquidity in the real estate market due to the recent interest hike.
Many of these competitors enjoy competitive advantages over us, including greater name recognition, established lending relationships with customers, financial resources, and access to capital. However, we have seen less competition and less liquidity in the real estate market due to the interest rate increases in recent years.
The information on our website is not incorporated by reference into this Report. 14
The information on our website is not incorporated by reference into this Report. 13
We utilize rigorous underwriting and loan closing procedures that include numerous checks and balances to evaluate the risks and merits of each potential transaction. We seek to protect and preserve capital by carefully evaluating the condition of the property, the location of the property, and the creditworthiness of the guarantors. ● Vertically-integrated loan origination platform.
We utilize rigorous underwriting and loan closing procedures that include numerous checks and balances to evaluate the risks and merits of each potential transaction. We seek to protect and preserve capital by carefully evaluating the conditions of various properties, property locations, and the creditworthiness of the guarantors. ● Vertically-integrated loan origination platform.
As of December 31, 2022, the interest rates under the Webster Credit Line equaled (i) LIBOR plus a premium, which rate aggregated 8.39%, including a 0.5% agency fee, 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.
As of December 31, 2023, the interest rates under the Webster Credit Line equaled (i) the Secured Overnight Financing Rate (“SOFR”) plus a premium, which rate aggregated 8.96%, including a 0.5% agency fee, or (ii) a Base Rate (as defined in the Amended and Restated Credit Agreement) plus 2.00% plus a 0.5% agency fee, as chosen by the Company for each drawdown.
We also believe that we benefit from our low equity-to-debt ratio in the current market condition. 11 Notwithstanding some of our competitive disadvantages, we believe we have carved a niche for ourselves among small real estate developers, owners and contractors throughout the New York metropolitan area because of our ability to structure each loan to suit the needs of each individual borrower and our ability to act quickly.
Notwithstanding some of our competitive disadvantages, we believe we have carved a niche for ourselves among small real estate developers, owners and contractors throughout the New York metropolitan area because of our ability to structure each loan to suit the needs of each individual borrower and our ability to act quickly.
We entertain requests for granting extensions under certain conditions. Prepayments - Borrower may prepay the loan at any time beginning three months after the funding date and in some instances, we waive prepayment fees.
Prepayments - Borrower may prepay the loan at any time beginning three months after the funding date and in some instances, we waive prepayment fees.
Our loan portfolio The following table highlights certain information regarding our real estate lending activities for the periods indicated: Year Ended December 31, ($ in thousands) 2022 2021 Loans originated $ 60,916 $ 49,268 Loans repaid $ 52,147 $ 41,650 Mortgage lending revenues $ 8,571 $ 6,808 Mortgage lending expenses $ 1,827 $ 1,053 Number of loans outstanding 122 131 Principal amount of loans earning interest $ 74,483 $ 65,715 Average outstanding loan balance $ 611 $ 502 Percent of loans secured by New York metropolitan area properties, including in New Jersey and Connecticut (1) 95.90 % 95.42 % Weighted average contractual interest rate 10.44% 9.53 % Weighted average term to maturity (in months) (2) 6.23 5.71 (1) Calculated based on the number of loans.
Our loan portfolio The following table highlights certain information regarding our real estate lending activities for the periods indicated: Year Ended December 31, ($ in thousands) 2023 2022 Loans originated $ 56,301 $ 60,916 Loans repaid $ 57,736 $ 52,147 Mortgage lending revenues $ 9,796 $ 8,571 Mortgage lending expenses $ 2,528 $ 1,827 Number of loans outstanding 120 122 Principal amount of loans earning interest $ 73,048 $ 74,483 Average outstanding loan balance $ 609 $ 611 Percent of loans secured by New York metropolitan area properties, including in New Jersey and Connecticut (1) 97.50 % 95.90 % Weighted average contractual interest rate 11.49 % 10.44 % Weighted average term to maturity (in months) (2) 6.77 6.23 (1) Calculated based on the number of loans.
In general, our strategy is to service and manage the loans we originate until they are paid. However, there have been a few instances where we have either used loans as collateral, or sold participating interests in loans. At December 31, 2022, most of our loans are secured by properties located around the New York metropolitan area.
However, there have been a few instances where we have either used loans as collateral, or sold participating interests in loans. At December 31, 2023, most of our loans are secured by properties located around the New York metropolitan area. Most of the properties we finance are residential, although on occasion they are classified as commercial.
We also engage with third parties in order to support sales and marketing efforts as needed. Intellectual Property Our business does not depend on exploiting or leveraging any intellectual property rights.
A principal source of new transactions has been repeat business from prior customers and their referral of new leads. We also engage with third parties in order to support sales and marketing efforts as needed. Intellectual Property Our business does not depend on exploiting or leveraging any intellectual property rights.
(See Note 5 to the financial statements included elsewhere in this Report.) As of December 31, 2022 and March 3, 2023, $24,994,234 and $22,868,370, respectively, was outstanding under the Webster Credit Line.
(See Note 5 to the financial statements included elsewhere in this Report.) As of December 31, 2023 and March 4, 2024, $25,152,338 and $25,568,012, respectively, was outstanding under the Webster Credit Line.
Loans are originated by our internal team, and we also receive leads for new business from real estate brokers, mortgage brokers and a limited amount of advertising. Our primary business objective is to grow our loan portfolio while protecting and preserving capital in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term through dividends.
Our primary business objective is to grow our loan portfolio while protecting and preserving capital in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term through dividends.
The applicable benchmark has transitioned from LIBOR to SOFR effective January 2, 2023.The following table shows our capitalization, including our financing arrangements, and our loan portfolio as of December 31, 2022: Capitalization ($ in thousands): Debt: Line of credit $ 24,994 Senior secured notes (net of deferred financing costs of $247) 5,753 Total debt 30,747 Other liabilities 2,669 Capital (equity) 42,864 Total sources of capital $ 76,280 Assets: Loans $ 74,483 Other assets 1,797 Total assets $ 76,280 Competition The real estate finance market around the New York metropolitan area is highly competitive.
The following table shows our capitalization, including our financing arrangements, and our loan portfolio as of December 31, 2023: Capitalization ($ in thousands): Debt: Line of credit $ 25,152 Senior secured notes (net of deferred financing costs of $172) 5,828 Total debt 30,980 Other liabilities 2,522 Capital (equity) 42,933 Total sources of capital $ 76,435 Assets: Loans $ 73,048 Other assets 3,387 Total assets $ 76,435 Competition The real estate finance market around the New York metropolitan area is highly competitive.
Loan-to-Value Ratio - Up to 75%, and/or up to 80% of construction costs. Interest rate - Most of the loans in our portfolio have a fixed rate of typically 9% to 12%. Term - Generally, one year with early termination in the event of a sale of the property or a refinancing.
Interest rate - Most of the loans in our portfolio have a fixed rate of typically 9% to 13.5%. Term - Generally, one year with early termination in the event of a sale of the property or a refinancing. We entertain requests for granting extensions under certain conditions.
However, our loan portfolio includes a number of construction loans, which are only partially funded at closing. At December 31, 2022, our unfunded commitment was approximately $8.58 million. At December 31, 2021, our unfunded commitment was approximately $7.21 million.
However, our loan portfolio includes a number of construction loans, which are only partially funded at closing. At December 31, 2023 and 2022, our unfunded commitment was approximately $7.98 million and $8.58 million, respectively. Advances under construction loans are funded against requests supported by all required documentation as and when needed to pay contractors and other costs of construction.
As we have not operated in those markets for an extended period of time, we have faced competition from more established lenders, as well as some smaller lenders, in those markets.
As we have not operated in those markets for an extended period of time, we have faced competition from more established lenders, as well as some smaller lenders, in those markets. 11 Sales and Marketing We rely on our internal team to generate lending opportunities as well as referrals from existing or former borrowers, brokers and bankers and advertising to generate lending opportunities.
Advances under construction loans are funded against requests supported by all required documentation as and when needed to pay contractors and other costs of construction. In the case of construction loans, the borrower will either deliver multiple notes or one global note for the entire commitment. In either case, interest only accrues on the funded portion of the loan.
In the case of construction loans, the borrower will either deliver multiple notes or one global note for the entire commitment. In either case, interest only accrues on the funded portion of the loan. In general, our strategy is to service and manage the loans we originate until they are paid.
The typical terms of our loans are as follows: Principal amount – In the last seven years, a minimum of $40,000 to a maximum of $3.3 million. Our lending policy limits the maximum loan amount to the lower of (i) 9.9% of the aggregate amount of our loan portfolio (not including the loan under consideration) and (ii) $3.5 million.
Our lending policy limits the maximum loan amount to the lower of (i) 9.9% of the aggregate amount of our loan portfolio (not including the loan under consideration) and (ii) $3.5 million. Loan-to-Value Ratio - Up to 75%, and/or up to 80% of construction costs.
Loans are underwritten and structured by our Chief Executive Officer, assisted by our Chief Financial Officer, and then managed and serviced principally by our Chief Financial Officer and our internal team. A principal source of new transactions has been repeat business from prior customers and their referral of new business.
A principal source of new transactions has been repeat business from prior customers and their referral of new business. Loans are originated by our internal team, and we also receive leads for new business from real estate brokers, mortgage brokers and a limited amount of advertising.
Most of the properties we finance are residential, although on occasion they are classified as commercial. However, in all instances the properties are held only for investment by the borrowers. Most of these properties do not generate any cash flow.
However, in all instances the properties are held only for investment by the borrowers. Most of these properties do not generate any cash flow. The typical terms of our loans are as follows: Principal amount – In the last seven years, a minimum of $40,000 to a maximum of $3.3 million.
When we renew or extend a loan, we generally receive additional “points” and other fees. Our executive officers are experienced in hard money lending under various economic and market conditions.
Our executive officers are experienced in hard money lending under various economic and market conditions. Loans are underwritten and structured by our Chief Executive Officer, assisted by our Chief Financial Officer, and then managed and serviced principally by our Chief Financial Officer and our internal team.
Removed
(2) Without giving effect to extension options. 9 At December 31, 2022 and 2021, no single loan, borrower or group of affiliated borrowers accounted for more than 10% of our loan portfolio.
Added
When we renew or extend a loan, we generally receive additional “points” and other fees. In June 2023, we filed a foreclosure lawsuit relating to one property, as a result of a deed transfer from the borrower to a buyer without our consent.
Removed
Sales and Marketing We rely on our internal team to generate lending opportunities as well as referrals from existing or former borrowers, brokers and bankers and advertising to generate lending opportunities. A principal source of new transactions has been repeat business from prior customers and their referral of new leads.
Added
In that instance, the buyer of the property on which we had a valid mortgage suffered a data breach which resulted in the failure of the buyer to remit the funds needed for the loan payoff. In October 2023, we received the entire payoff amount for the loan receivable, including all unpaid fees, to rectify the situation.
Added
We also believe that we benefit from our low equity-to-debt ratio in the current market condition.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

89 edited+9 added−9 removed205 unchanged
Biggest changeIn addition, distributions that we make to our shareholders will generally be taxable to our shareholders as ordinary income (subject to the lower effective tax rates applicable to qualified REIT dividends via the deduction-without-outlay mechanism of Section 199A of the Code, which is generally available to our noncorporate U.S. shareholders that meet specified holding requirement for taxable years before 2026).
Biggest changeAs a result, we cannot assure you that we will be able to make distributions to our shareholders at any time in the future or that the level of any distributions we do make to our shareholders will achieve a market yield or increase or even be maintained over time, any of which could materially and adversely affect us. 32 In addition, distributions that we make to our shareholders will generally be taxable to our shareholders as ordinary income (subject to the lower effective tax rates applicable to qualified REIT dividends via the deduction-without-outlay mechanism of Section 199A of the Code, which is generally available to our noncorporate U.S. shareholders that meet specified holding requirement for taxable years before 2026).
The Webster Credit Line contains various covenants and restrictions that are typical for these kinds of credit facilities, including limiting the amount that we can borrow relative to the value of the underlying collateral, maintaining various financial ratios and limitations on the terms of loans we make to our customers.
The Webster Credit Line contains various covenants and restrictions that are typical for these kinds of credit facilities, including limiting the amount that we can borrow relative to the value of the underlying collateral, maintaining various financial ratios and limitations on the terms of loans we make to our customers.
This would significantly harm our business, financial condition, results of operations and ability to make distributions and could result in the foreclosure of our assets which secure our obligations, which could cause the value of our outstanding securities to decline.
This would significantly harm our business, financial condition, results of operations and ability to make distributions and could result in the foreclosure of our assets which secure our obligations, which could cause the value of our outstanding securities to decline.
Incurring substantial debt could subject us to many risks that, if realized, would materially and adversely affect us, including the risk that: ● our cash flow from operations may be insufficient to make required payments of principal and interest on our outstanding indebtedness or we may fail to comply with other covenants contained in the debt, which is likely to result in (i) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision) that we may be unable to repay from internal funds or to refinance on favorable terms, or at all, (ii) our inability to borrow unused amounts under our financing arrangements, even if we are current in payments on borrowings under those arrangements and/or (iii) the loss of some or all of our assets pledged or liened to secure our indebtedness to foreclosure or sale; 30 ● our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that yields will increase with higher financing costs; ● we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, future business opportunities, shareholder distributions or other purposes; and ● we are not able to refinance debt that matures prior to the asset it was used to finance on favorable terms, or at all.
Incurring substantial debt could subject us to many risks that, if realized, would materially and adversely affect us, including the risk that: ● our cash flow from operations may be insufficient to make required payments of principal and interest on our outstanding indebtedness or we may fail to comply with other covenants contained in the debt, which is likely to result in (i) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision) that we may be unable to repay from internal funds or to refinance on favorable terms, or at all, (ii) our inability to borrow unused amounts under our financing arrangements, even if we are current in payments on borrowings under those arrangements and/or (iii) the loss of some or all of our assets pledged or liened to secure our indebtedness to foreclosure or sale; ● our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that yields will increase with higher financing costs; ● we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, future business opportunities, shareholder distributions or other purposes; and ● we are not able to refinance debt that matures prior to the asset it was used to finance on favorable terms, or at all.
A default could also significantly limit our financing alternatives such that we would be unable to pursue our leverage strategy, which could adversely affect our returns. Under the terms of the agreement governing the Webster Credit Line, our borrowing capacity is limited to 70% of Eligible Mortgage Loans (as defined). Moreover, Webster, in its discretion, may reduce this percentage.
A default could also significantly limit our financing alternatives such that we would be unable to pursue our leverage strategy, which could adversely affect our returns. 27 Under the terms of the agreement governing the Webster Credit Line, our borrowing capacity is limited to 70% of Eligible Mortgage Loans (as defined). Moreover, Webster, in its discretion, may reduce this percentage.
These limitations include the following: ● limit our ability to pay dividends under certain circumstances; ● limit our ability to make certain investments or acquisitions; ● limit our ability to reduce liquidity below certain levels; 29 ● limit our ability to redeem debt or equity securities; ● limit our ability to determine our operating policies and investment strategies; and ● limit our ability to repurchase our common shares, sell assets, engage in mergers or consolidations, grant liens and enter into transactions with affiliates.
These limitations include the following: ● limit our ability to pay dividends under certain circumstances; ● limit our ability to make certain investments or acquisitions; ● limit our ability to reduce liquidity below certain levels; ● limit our ability to redeem debt or equity securities; ● limit our ability to determine our operating policies and investment strategies; and ● limit our ability to repurchase our common shares, sell assets, engage in mergers or consolidations, grant liens and enter into transactions with affiliates.
Accordingly, compliance with REIT requirements may hinder our ability to operate solely on the basis of maximizing profits. 31 Our failure to remain qualified for taxation as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which would reduce the amount of cash available for distribution to our shareholders.
Accordingly, compliance with REIT requirements may hinder our ability to operate solely on the basis of maximizing profits. Our failure to remain qualified for taxation as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which would reduce the amount of cash available for distribution to our shareholders.
If a bankruptcy case were filed by or against us or MBC Funding II under the U.S. Bankruptcy Code, the Noteholders may receive, on account of their claims related to the Notes, less than they would be entitled to under the terms of the Indenture. 41 An active public trading market for the Notes may not develop.
If a bankruptcy case were filed by or against us or MBC Funding II under the U.S. Bankruptcy Code, the Noteholders may receive, on account of their claims related to the Notes, less than they would be entitled to under the terms of the Indenture. An active public trading market for the Notes may not develop.
We cannot assure you that such claims will not arise or that we will not be subject to significant liability if a claim of this type did arise. An increase in the rate of prepayment of outstanding loans may have an adverse impact on the value of our portfolio as well as our revenue and income.
We cannot assure you that such claims will not arise or that we will not be subject to significant liability if a claim of this type did arise. 22 An increase in the rate of prepayment of outstanding loans may have an adverse impact on the value of our portfolio as well as our revenue and income.
As a result, we will have less cash available for paying our other operating expenses and for making distributions to our shareholders. This would have a material adverse effect on the market value of our securities. 28 Our revenues and the value of our portfolio may be negatively affected by casualty events occurring on properties securing our loans.
As a result, we will have less cash available for paying our other operating expenses and for making distributions to our shareholders. This would have a material adverse effect on the market value of our securities. Our revenues and the value of our portfolio may be negatively affected by casualty events occurring on properties securing our loans.
Nevertheless, if demand for our mortgage loans increases, we cannot assure you that we will be able to capitalize on this demand given the limited funds available to us to originate loans. 17 We operate in a highly competitive market and competition may limit our ability to originate loans with favorable interest rates.
Nevertheless, if demand for our mortgage loans increases, we cannot assure you that we will be able to capitalize on this demand given the limited funds available to us to originate loans. We operate in a highly competitive market and competition may limit our ability to originate loans with favorable interest rates.
These requirements make it more difficult to change our management by removing and replacing directors and may prevent a change in control of our company that is in the best interests of our shareholders. 39 Risks Related to the Notes issued by MBC Funding II Shareholders’ interests may not always be aligned with the interests of the Noteholders.
These requirements make it more difficult to change our management by removing and replacing directors and may prevent a change in control of our company that is in the best interests of our shareholders. Risks Related to the Notes issued by MBC Funding II Shareholders’ interests may not always be aligned with the interests of the Noteholders.
These changes may increase our exposure to interest rate risk, default risk, financing risk and real estate market fluctuations, which could adversely affect our business, operations and financial conditions as well as the value of our securities and our ability to make distributions to our shareholders. 18 Management has broad authority to make lending decisions.
These changes may increase our exposure to interest rate risk, default risk, financing risk and real estate market fluctuations, which could adversely affect our business, operations and financial conditions as well as the value of our securities and our ability to make distributions to our shareholders. Management has broad authority to make lending decisions.
Further, no governmental entity insures or guarantees payment on the Notes if MBC Funding II does not have enough funds to make principal or interest payments. 42 General Risk Factors Our access to financing may be limited and, thus, our ability to maximize our returns may be adversely affected.
Further, no governmental entity insures or guarantees payment on the Notes if MBC Funding II does not have enough funds to make principal or interest payments. General Risk Factors Our access to financing may be limited and, thus, our ability to maximize our returns may be adversely affected.
If we are unable to recruit and retain qualified personnel in the future, our ability to continue to operate and to grow our business will be impaired. 19 Terrorist attacks and other acts of violence or war may affect the real estate industry generally and our business, financial condition and results of operations.
If we are unable to recruit and retain qualified personnel in the future, our ability to continue to operate and to grow our business will be impaired. Terrorist attacks and other acts of violence or war may affect the real estate industry generally and our business, financial condition and results of operations.
If property owners are unable to obtain affordable insurance coverage, the value of their properties could decline and in the event of an uninsured loss, we could lose all or a portion of our investment. Our existing credit line has numerous covenants.
If property owners are unable to obtain affordable insurance coverage, the value of their properties could decline and in the event of an uninsured loss, we could lose all or a portion of our investment. 18 Our existing credit line has numerous covenants.
We cannot assure the Noteholders that they will be able to sell the Notes if they wish to do so or, even if they can sell their Notes that they will recover their entire investment. MBC Funding II may not be able to make the required payments of interest and principal on the Notes.
We cannot assure the Noteholders that they will be able to sell the Notes if they wish to do so or, even if they can sell their Notes that they will recover their entire investment. 37 MBC Funding II may not be able to make the required payments of interest and principal on the Notes.
A default could also significantly limit our financing alternatives such that we would be unable to pursue our leverage strategy, which could adversely affect our returns. 20 Our indebtedness could adversely affect our financial flexibility and our competitive position. We have, and expect that we will continue to have a significant amount of indebtedness.
A default could also significantly limit our financing alternatives such that we would be unable to pursue our leverage strategy, which could adversely affect our returns. Our indebtedness could adversely affect our financial flexibility and our competitive position. We have, and expect that we will continue to have a significant amount of indebtedness.
A return of capital is not taxable, but has the effect of reducing the basis of a shareholder’s investment in our common shares. 36 We could be materially and adversely affected if we are deemed to be an investment company under the Investment Company Act.
A return of capital is not taxable, but has the effect of reducing the basis of a shareholder’s investment in our common shares. We could be materially and adversely affected if we are deemed to be an investment company under the Investment Company Act.
Any sustained period of increased payment delinquencies, foreclosures or losses could adversely affect both our net interest income from loans in our portfolio as well as our ability to originate new loans, which would materially and adversely affect our results of operations, financial condition, liquidity and business and our ability to make distributions to our shareholders. 25 We do not carry any loan loss reserves.
Any sustained period of increased payment delinquencies, foreclosures or losses could adversely affect both our net interest income from loans in our portfolio as well as our ability to originate new loans, which would materially and adversely affect our results of operations, financial condition, liquidity and business and our ability to make distributions to our shareholders. 23 We do not carry any loan loss reserves.
Shareholders also tend to focus on building value and increasing stock price while creditors are more interested in cash flow. As of the date of this Report, Mr. Ran beneficially owns 22.6%, of our outstanding common shares. Mr. Ran is also the Chief Executive Officer and sole director of MBC Funding II. Thus, Mr.
Shareholders also tend to focus on building value and increasing stock price while creditors are more interested in cash flow. As of the date of this Report, Mr. Ran beneficially owns 22.8%, of our outstanding common shares. Mr. Ran is also the Chief Executive Officer and sole director of MBC Funding II. Thus, Mr.
Under our current business model, we have one asset class — mortgage loans that we originate, service and manage — and we have no current plans to diversify. Moreover, most of our collateral is located in a limited geographic area. At December 31, 2022, most of our outstanding loans are secured by properties located in the New York metropolitan area.
Under our current business model, we have one asset class — mortgage loans that we originate, service and manage — and we have no current plans to diversify. Moreover, most of our collateral is located in a limited geographic area. At December 31, 2023, most of our outstanding loans are secured by properties located in the New York metropolitan area.
While we try to mitigate these risks in various ways, including by getting personal guarantees from the principals of the borrower, we cannot assure you that these lending and credit enhancement strategies will be successful. 26 Volatility of values of residential and commercial properties may adversely affect our loans and investments.
While we try to mitigate these risks in various ways, including by getting personal guarantees from the principals of the borrower, we cannot assure you that these lending and credit enhancement strategies will be successful. 24 Volatility of values of residential and commercial properties may adversely affect our loans and investments.
Other factors that could negatively affect the market price of our common shares include: ● our actual or projected operating results, financial condition, cash flows and liquidity, or changes in business strategy or prospects; ● actual or perceived conflicts of interest with individuals, including our executive officers; ● equity issuances by us, or share resales by our shareholders, or the perception that such issuances or resales may occur; ● actual or anticipated accounting problems; ● changes in our earnings estimates or publication of research reports about us or the real estate industry; ● changes in market valuations of similar companies; ● adverse market reaction to any increased indebtedness we incur in the future; ● additions to or departures of our key personnel; ● speculation in the press or investment community; ● our failure to meet, or the lowering of, our earnings’ estimates or those of any securities analysts; ● increases in market interest rates, which may lead investors to demand a higher distribution yield for our common shares, would result in increased interest expenses on our debt; ● decreases in market interest rates, which will increase competition in the market for loans and may require use to lower our interest rates and fees for loans we originate; ● changes in the credit markets; ● failure to maintain our qualification for taxation as a REIT or exemption from the Investment Company Act; ● actions by our shareholders; ● price and volume fluctuations in the stock market generally; ● general market and economic conditions, including the current state of the credit and capital markets; ● sales of large blocks of our common shares; ● sales of our common shares by our executive officers, directors and significant shareholders; and ● restatements of our financial results and/or material weaknesses in our internal controls. 44 The price of our common shares is volatile, and purchasers of our common shares could incur substantial losses.
Other factors that could negatively affect the market price of our common shares include: ● our actual or projected operating results, financial condition, cash flows and liquidity, or changes in business strategy or prospects; ● actual or perceived conflicts of interest with individuals, including our executive officers; ● equity issuances by us, or share resales by our shareholders, or the perception that such issuances or resales may occur; ● actual or anticipated accounting problems; ● changes in our earnings estimates or publication of research reports about us or the real estate industry; ● changes in market valuations of similar companies; ● adverse market reaction to any increased indebtedness we incur in the future; ● additions to or departures of our key personnel; ● speculation in the press or investment community; ● our failure to meet, or the lowering of, our earnings’ estimates or those of any securities analysts; 39 ● increases in market interest rates, which may lead investors to demand a higher distribution yield for our common shares, would result in increased interest expenses on our debt; ● decreases in market interest rates, which will increase competition in the market for loans and may require use to lower our interest rates and fees for loans we originate; ● changes in the credit markets; ● failure to maintain our qualification for taxation as a REIT or exemption from the Investment Company Act; ● actions by our shareholders; ● price and volume fluctuations in the stock market generally; ● general market and economic conditions, including the current state of the credit and capital markets; ● sales of large blocks of our common shares; ● sales of our common shares by our executive officers, directors and significant shareholders; and ● restatements of our financial results and/or material weaknesses in our internal controls.
Thus, compliance with the REIT distribution requirements may hinder our ability to grow, which could adversely affect the value of our securities. 33 Even if we remain qualified for taxation as a REIT, we may face tax liabilities that reduce our cash flow.
Thus, compliance with the REIT distribution requirements may hinder our ability to grow, which could adversely affect the value of our securities. 30 Even if we remain qualified for taxation as a REIT, we may face tax liabilities that reduce our cash flow.
While we believe that we qualified for taxation as a REIT for the taxable year ended December 31, 2022, we have not requested and do not intend to request a ruling from the IRS that we so qualified in 2022 or that we will qualify in future years.
While we believe that we qualified for taxation as a REIT for the taxable year ended December 31, 2023, we have not requested and do not intend to request a ruling from the IRS that we so qualified in 2023 or that we will qualify in future years.
For example, it could: ● make it more difficult for us to satisfy our obligations; ● increase our vulnerability to adverse changes in general economic, industry and competitive conditions; ● require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; ● limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; ● limit our ability to make material acquisitions or take advantage of business opportunities that may arise; ● expose us to fluctuations in interest rates, to the extent our borrowings bear variable rates of interest; ● place us at a competitive disadvantage compared to our competitors that have less debt; ● limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business plan or other general corporate purposes on reasonable terms or at all; ● reduce the amount of surplus funds distributable by our subsidiary to us for use in our business, such as for the payment of indebtedness and dividends to our shareholders; and ● lead us to elect to make additional investments in our subsidiary if their cash flow from operations is insufficient for them to make payments on their indebtedness.
For example, it could: ● make it more difficult for us to satisfy our obligations; ● increase our vulnerability to adverse changes in general economic, industry and competitive conditions; ● require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; ● limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; ● limit our ability to make material acquisitions or take advantage of business opportunities that may arise; ● expose us to fluctuations in interest rates, to the extent our borrowings bear variable rates of interest; ● place us at a competitive disadvantage compared to our competitors that have less debt; ● limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business plan or other general corporate purposes on reasonable terms or at all; ● reduce the amount of surplus funds distributable by our subsidiary to us for use in our business, such as for the payment of indebtedness and dividends to our shareholders; and ● lead us to elect to make additional investments in our subsidiary if their cash flow from operations is insufficient for them to make payments on their indebtedness. 19 We may incur additional debt, which could exacerbate the risks associated with our leverage.
These risks are discussed more fully below and include, but are not limited to, risks related to: Risks Relating to Our Business ● that our loan origination activities, revenues and profits are limited by available funds; ● the competitive real estate lending market and competition; ● our investment, leverage and financing strategies; ● the broad authority of our management team in making lending decisions and their importance to our business; ● the impact of potential security breaches; Risks Related to Our Portfolio ● the impact of interest rates on our borrowing and business and the requirement to meet covenants contained in our credit line facility; ● the impact of overestimating loan yields or the value of collateral and interest rate fluctuations; ● market conditions for mortgages and mortgage-related assets; ● extension of existing loans; ● potential lender liability claims; 15 ● the impact of the timing of prepayment of loans; ● the liquidity of our loan portfolio; ● the geographic concentration of our loan portfolio; ● our exposure to economic slowdowns or recessions; ● our ability to foreclose promptly as may be necessary; ● potential liability relating to environmental matters; ● loan defaults; ● casualty events occurring on properties securing our loans; ● borrower concentration; Risks Related to Financing Transactions ● complying with covenants in our existing credit line; ● our use of leverage; Risks Related to REIT Status and Investment Company Act Exemption ● potential challenges by the Internal Revenue Service (the “IRS”); ● compliance with REIT requirements, including REIT distribution requirements; ● potential tax liabilities and our reliance on tax and legal advice on our REIT status; ● the impact of our distributions and the tax impact of our dividend payments; ● the impact of the liquidation of our assets; ● the ownership restrictions set forth in our restated certificate of incorporation; ● ability to generate sufficient cash flow to make distributions; ● the impact of being deemed an investment company under the Investment Company Act; Risks Related to Our Common Shares ● the potential for our largest shareholder’s interests not aligning with those of our other shareholders; 16 Risks Related to Our Organization and Structure ● the impact of certain provisions of New York law; ● our capital structure may prevent a change in control and the limited rights of shareholders to take action against our officers and directors; Risks Related to the Notes issued by MBC Funding II ● our shareholders and noteholders may not have aligned interests; ● the restrictive covenants in the Indentures; ● the potential lack of protection against certain events that may impact the obligations under the Notes; ● our inherent conflict of interest with MBC Funding II; ● the potential lack of ability of the Indenture Trustee and Noteholders to enforce their rights; ● the impact of bankruptcy on us or MBC Funding II; General Risk Factors ● access to financing; ● the limited trading and volatility in our common stock future events that may impact the price of our common stock; and ● future offerings may adversely affect the market and our stockholders.
These risks are discussed more fully below and include, but are not limited to, risks related to: Risks Relating to Our Business ● our loan origination activities, revenues and profits are limited by available funds; ● the competitive real estate lending market and competition; ● our investment, leverage and financing strategies; ● the broad authority of our management team in making lending decisions and their importance to our business; ● the impact of potential security breaches; Risks Related to Our Portfolio ● the impact of interest rates on our borrowing and business and the requirement to meet covenants contained in our credit line facility; ● the impact of overestimating loan yields or the value of collateral and interest rate fluctuations; ● market conditions for mortgages and mortgage-related assets; ● extension of existing loans; ● potential lender liability claims; ● the impact of the timing of prepayment of loans; ● the liquidity of our loan portfolio; ● the geographic concentration of our loan portfolio; ● our exposure to economic slowdowns or recessions; ● our ability to foreclose as promptly as may be necessary; ● potential liability relating to environmental matters; ● loan defaults; ● casualty events occurring on properties securing our loans; ● borrower concentration; 14 Risks Related to Financing Transactions ● complying with covenants in our existing credit line; ● our use of leverage; Risks Related to REIT Status and Investment Company Act Exemption ● potential challenges by the Internal Revenue Service (the “IRS”); ● compliance with REIT requirements, including REIT distribution requirements; ● potential tax liabilities and our reliance on tax and legal advice on our REIT status; ● the impact of our distributions and the tax impact of our dividend payments; ● the impact of the liquidation of our assets; ● the ownership restrictions set forth in our restated certificate of incorporation; ● our ability to generate sufficient cash flow to make distributions; ● the impact of being deemed an investment company under the Investment Company Act; Risks Related to Our Common Shares ● the potential for our largest shareholder’s interests not aligning with those of our other shareholders; Risks Related to Our Organization and Structure ● the impact of certain provisions of New York law; ● our capital structure may prevent a change in control and the limited rights of shareholders to take action against our officers and directors; Risks Related to the Notes issued by MBC Funding II ● our shareholders and noteholders may not have aligned interests; ● the restrictive covenants in the indenture (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 Trustee”) relating to the notes issued to certain noteholders (the Noteholders”); ● the potential lack of protection against certain events that may impact the obligations under the Notes; ● our inherent conflict of interest with MBC Funding II; ● the potential lack of ability of the Indenture Trustee and Noteholders to enforce their rights; ● the impact of bankruptcy on us or MBC Funding II; 15 General Risk Factors ● access to financing; ● the limited trading and volatility in our common stock; ● future events that may impact the price of our common stock; and ● future offerings may adversely affect the market and our stockholders.
Thus, changes in interest rates will affect our revenue and net income in one or more of the following ways: ● an increase in the SOFR rate may impact our cost of borrowing under the Webster Credit Line; ● our operating expenses may increase; ● our ability to originate loans may be adversely impacted; ● to the extent we use our credit line or other forms of debt financing to originate loans, our borrowing costs would rise, reducing the “spread” between our cost of funds and the yield on our outstanding mortgage loans, which tend to be fixed rate obligations; ● a rise in interest rates may discourage potential borrowers from refinancing existing loans or defer plans to renovate or improve their properties; ● a drop in interest rates may reduce our revenues by requiring us to reduce the interest rates we charge potential borrowers; ● borrower default rates may increase; ● property values may be negatively impacted, making our existing loans riskier and new loans that we originate smaller; and ● rising interest rates could also result in reduced turnover of properties which may reduce the demand for new mortgage loans. 22 Rising interest rates may reduce our profitability and may cause losses.
Thus, changes in interest rates will affect our revenue and net income in one or more of the following ways: ● an increase or continued high level in the SOFR rate impacts our cost of borrowing under the Webster Credit Line; ● our operating expenses may increase; ● our ability to originate loans may be adversely impacted; ● to the extent we use our credit line or other forms of debt financing to originate loans, our borrowing costs would rise, reducing the “spread” between our cost of funds and the yield on our outstanding mortgage loans, which tend to be fixed rate obligations; ● a rise in, or high level of, interest rates may discourage potential borrowers from refinancing existing loans or defer plans to renovate or improve their properties; ● a drop in interest rates may reduce our revenues by requiring us to reduce the interest rates we charge potential borrowers; ● borrower default rates may increase; ● property values may be negatively impacted, making our existing loans riskier and new loans that we originate smaller; and ● rising or continued high interest rates could also result in reduced turnover of properties which may reduce the demand for new mortgage loans.
Our ability to originate real estate loans is limited by the funds at our disposal. As of March 3, 2023, we had approximately $9.6 million of borrowing availability under the Webster Credit Line. We intend to use the proceeds from the repayment of loans outstanding and the additional borrowing capacity under the Webster Credit Line to originate real estate loans.
Our ability to originate real estate loans is limited by the funds at our disposal. As of March 4, 2024, we had approximately $6.9 million of borrowing availability under the Webster Credit Line. We intend to use the proceeds from the repayment of loans outstanding and the additional borrowing capacity under the Webster Credit Line to originate real estate loans.
As of December 31, 2022, Mr. Ran owns 22.6% of our outstanding common shares. In addition, our board of directors may grant such an exemption to such limitations in its sole discretion, subject to such conditions, representations and undertakings as it may determine.
As of December 31, 2023, Mr. Ran owns 22.8% of our outstanding common shares. In addition, our board of directors may grant such an exemption to such limitations in its sole discretion, subject to such conditions, representations and undertakings as it may determine.
If market interest rates continue to increase, prospective investors may demand a higher distribution rate or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuations and conditions in the capital markets can affect the market value of our common shares.
If market interest rates increase or remain at high levels, prospective investors may demand a higher distribution rate or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuations and conditions in the capital markets can affect the market value of our common shares.
We cannot predict the effect, if any, the future sale of the common shares would have on the market price of our common shares. The market price of our common shares may decline significantly when the restrictions on resale lapse.
Common shares eligible for future sale may have adverse effects on our share price. We cannot predict the effect, if any, the future sale of the common shares would have on the market price of our common shares. The market price of our common shares may decline significantly when the restrictions on resale lapse.
As of December 31, 2022, we had approximately $30.7 million of debt outstanding, consisting of the amounts outstanding under the Webster Credit Line and the balance of senior secured notes. As of March 3, 2023, another $9.6 million was available under the recently amended Webster Credit Line.
As of December 31, 2023, we had approximately $31.0 million of debt outstanding, consisting of the amounts outstanding under the Webster Credit Line and the balance of senior secured notes. As of March 4, 2024, another $6.9 million was available under the recently amended Webster Credit Line.
If any of these or similar events occur, the amount of coverage may not be sufficient to replace a damaged or destroyed property and/or to repay in full the amount due on loans collateralized by such property. As a result, our returns and the value of our investment may be reduced.
If any of these or similar events occur, the amount of coverage may not be sufficient to replace a damaged or destroyed property and/or to repay in full the amount due on loans collateralized by such property.
We cannot assure you that we will have access to such equity or debt capital on favorable terms (including, without limitation, cost and term) at the desired times, or at all, which may cause us to curtail our lending activities and/or dispose of loans in our portfolio, which could negatively affect our results of operations. 43 The market prices of our common shares may be adversely affected by future events.
We cannot assure you that we will have access to such equity or debt capital on favorable terms (including, without limitation, cost and term) at the desired times, or at all, which may cause us to curtail our lending activities and/or dispose of loans in our portfolio, which could negatively affect our results of operations.
Borrower concentration could lead to significant losses, which could have a material adverse impact on our operating results and financial condition. A single borrower or a group of affiliated borrowers may account for more than 10% of our loan portfolio.
As a result, our returns and the value of our investment may be reduced. 26 Borrower concentration could lead to significant losses, which could have a material adverse impact on our operating results and financial condition. A single borrower or a group of affiliated borrowers may account for more than 10% of our loan portfolio.
Our restated certificate of incorporation authorizes us to issue up to 25,000,000 common shares and 5,000,000 preferred shares. As of March 3, 2023, we had 11,757,058 common shares issued and 11,494,945 common shares outstanding and no preferred shares issued or outstanding.
Our restated certificate of incorporation authorizes us to issue up to 25,000,000 common shares and 5,000,000 preferred shares. As of March 4, 2024, we had 11,757,058 common shares issued and 11,438,651 common shares outstanding and no preferred shares issued or outstanding.
Market factors unrelated to our performance could also negatively impact the value of our securities, including the market price of our common shares. One of the factors that investors may consider in deciding whether to buy or sell our common shares is our distribution rate as a percentage of our share price relative to market interest rates.
One of the factors that investors may consider in deciding whether to buy or sell our common shares is our distribution rate as a percentage of our share price relative to market interest rates.
For example, the Indenture requires MBC Funding II to maintain a specific debt coverage ratio at all times, specifically providing that 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, as well as limits or prohibits its ability to: ● acquire or dispose of assets; ● merge with another corporation; and ● incur additional secured and unsecured indebtedness.
For example, the Indenture requires MBC Funding II to maintain a specific debt coverage ratio at all times, specifically providing that 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, as well as limits or prohibits its ability to: ● acquire or dispose of assets; ● merge with another corporation; and ● incur additional secured and unsecured indebtedness. 35 MBC Funding II’s failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of the indebtedness evidenced by the Notes.
These factors include, without limitation, state foreclosure timelines and deferrals associated therewith (including with respect to litigation); unauthorized occupants living in the property; federal, state or local legislative action or initiatives designed to provide residential property owners with assistance in avoiding foreclosures and that serve to delay the foreclosure process; government programs that require specific procedures to be followed to explore the refinancing of a residential mortgage loan prior to the commencement of a foreclosure proceeding; and continued declines in real estate values and sustained high levels of unemployment that increase the number of foreclosures and place additional pressure on the already overburdened judicial and administrative systems. 27 None of our loans are funded with interest reserves and our borrowers may be unable to pay the interest accruing on the loans when due, which could have a material adverse impact on our financial condition.
These factors include, without limitation, state foreclosure timelines and deferrals associated therewith (including with respect to litigation); unauthorized occupants living in the property; federal, state or local legislative action or initiatives designed to provide residential property owners with assistance in avoiding foreclosures and that serve to delay the foreclosure process; government programs that require specific procedures to be followed to explore the refinancing of a residential mortgage loan prior to the commencement of a foreclosure proceeding; and continued declines in real estate values and sustained high levels of unemployment that increase the number of foreclosures and place additional pressure on the already overburdened judicial and administrative systems.
More favorable rates will nevertheless continue to apply to regular corporate “qualified” dividends, which may cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends. This could have an adverse impact on the market price of our common shares.
More favorable rates will nevertheless continue to apply to regular corporate “qualified” dividends, which may cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends.
As a result, many traditional mortgage lenders may suffer severe losses and even fail. This situation may negatively affect both the terms and availability of financing for small non-bank real estate finance companies.
As a result, many traditional mortgage lenders may suffer severe losses and even fail. This situation may negatively affect both the terms and availability of financing for small non-bank real estate finance companies. This could have an adverse impact on our financial condition, business and operations.
Class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Any such litigation brought against us could result in substantial costs, which would hurt our financial condition and results of operations, divert management’s attention and resources. Common shares eligible for future sale may have adverse effects on our share price.
These broad market fluctuations may adversely affect the trading price of our common shares. Class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Any such litigation brought against us could result in substantial costs, which would hurt our financial condition and results of operations, divert management’s attention and resources.
In addition, if we purchase or sell any real estate assets to avoid becoming an investment company under the Investment Company Act, our net asset value, the amount of funds available for investment and our ability to pay distributions to our shareholders could be materially adversely affected. 37 Risks Related to Our Common Shares Our largest shareholder’s interests may not always be aligned with the interests of our other shareholders.
In addition, if we purchase or sell any real estate assets to avoid becoming an investment company under the Investment Company Act, our net asset value, the amount of funds available for investment and our ability to pay distributions to our shareholders could be materially adversely affected.
We may incur additional debt, which could exacerbate the risks associated with our leverage. We and our subsidiary may incur substantial additional indebtedness in the future. The covenants in the agreement governing the Webster Credit Line may limit our ability and the ability of our subsidiary to incur additional indebtedness.
We and our subsidiary may incur substantial additional indebtedness in the future. The covenants in the agreement governing the Webster Credit Line may limit our ability and the ability of our subsidiary to incur additional indebtedness.
If we fail to qualify for taxation as a REIT in any taxable year, and we do not qualify for certain statutory relief provisions, we would be required to pay U.S. federal income tax on our taxable income, and distributions to our shareholders would not be deductible by us in determining our taxable income.
These considerations also might restrict the types of assets that we can acquire in the future. 29 If we fail to qualify for taxation as a REIT in any taxable year, and we do not qualify for certain statutory relief provisions, we would be required to pay U.S. federal income tax on our taxable income, and distributions to our shareholders would not be deductible by us in determining our taxable income.
In addition, any cybersecurity breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.
In addition, any cybersecurity breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. In addition, such cybersecurity breach could impact our borrowers if sensitive borrower information is compromised.
This could have an adverse impact on our financial condition, business and operations. 23 Loans on which the maturity date has been extended may involve a greater risk of loss than traditional mortgage loans. Borrowers usually use the proceeds of a long-term mortgage loan or sale to repay our loans.
Loans on which the maturity date has been extended may involve a greater risk of loss than traditional mortgage loans. Borrowers usually use the proceeds of a long-term mortgage loan or sale to repay our loans.
Our loans are not funded with an interest reserve. Thus, we rely on the borrowers to make interest payments as and when due from other sources of cash.
Thus, we rely on the borrowers to make interest payments as and when due from other sources of cash.
The percentage of leverage we employ will vary depending on our assessment of a variety of factors, which may include the anticipated liquidity and price volatility of our existing portfolio, the potential for losses and extension risk in our portfolio, the gap between the duration of our assets and liabilities, the availability and cost of financing, our opinion as to the creditworthiness of our financing counterparties, the health of the U.S. economy and commercial mortgage markets, our outlook for the level, slope, and volatility of interest rates, the credit quality of our borrowers and the collateral underlying our assets.
The percentage of leverage we employ will vary depending on our assessment of a variety of factors, which may include the anticipated liquidity and price volatility of our existing portfolio, the potential for losses and extension risk in our portfolio, the gap between the duration of our assets and liabilities, the availability and cost of financing, our opinion as to the creditworthiness of our financing counterparties, the health of the U.S. economy and commercial mortgage markets, our outlook for the level, slope, and volatility of interest rates, the credit quality of our borrowers and the collateral underlying our assets. 38 Our access to financing will depend upon a number of factors, over which we have little or no control, including: ● general market conditions; ● the market’s view of the quality of our assets; ● the market’s perception of our growth potential; ● our eligibility to participate in and access capital from programs established by the U.S.
Section 719 of the NYBCL limits director liability to the following four instances: ● declarations of dividends in violation of the NYBCL; ● a purchase or redemption by a corporation of its own shares in violation of the NYBCL; ● distributions of assets to shareholders following dissolution of the corporation without paying or providing for all known liabilities; and ● making any loans to directors in violation of the NYBCL.
Section 719 of the NYBCL limits director liability to the following four instances: ● declarations of dividends in violation of the NYBCL; ● a purchase or redemption by a corporation of its own shares in violation of the NYBCL; ● distributions of assets to shareholders following dissolution of the corporation without paying or providing for all known liabilities; and ● making any loans to directors in violation of the NYBCL. 34 Our restated certificate of incorporation and bylaws authorize us to indemnify our directors and officers for actions taken by them in those capacities to the maximum extent permitted by the NYBCL.
Our Chief Executive Officer and Chief Financial Officer are each critical to our business and our future success may depend on our ability to retain them. In addition, as our business grows we will need to hire additional personnel.
In conducting periodic reviews, our board of directors will rely primarily on information provided to them by management. 17 Our Chief Executive Officer and Chief Financial Officer are each critical to our business and our future success may depend on our ability to retain them. In addition, as our business grows we will need to hire additional personnel.
Various provisions in the Indenture restrict the ability of the Indenture Trustee and the Noteholders to enforce their rights against us in the event MBC Funding II defaults on its obligations under the Notes.
We cannot assure you that the decisions we ultimately make will be in the best interest of the Noteholders. 36 Various provisions in the Indenture restrict the ability of the Indenture Trustee and the Noteholders to enforce their rights against us in the event MBC Funding II defaults on its obligations under the Notes.
We intend to distribute our net income to our shareholders in a manner that will satisfy the REIT 90% distribution requirement and avoid the 4% nondeductible excise tax. 32 Under the terms of the agreement governing the Webster Line of Credit, we are prohibited from paying dividends with respect to our common shares if at the time during the 90-day period before the payment of the dividend and the 90-day period following the payment of the dividend we are within $500,000 of our maximum borrowing ability under the facility.
Under the terms of the agreement governing the Webster Line of Credit, we are prohibited from paying dividends with respect to our common shares if at the time during the 90-day period before the payment of the dividend and the 90-day period following the payment of the dividend we are within $500,000 of our maximum borrowing ability under the facility.
Our borrowings under the Webster Credit Line are currently subject to SOFR. In addition, in the future we may enter into financing arrangements that may be determined by reference to floating rates, 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 addition, in the future we may enter into financing arrangements that may be determined by reference to floating rates, 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. The U.S. Federal Reserve has raised interest rates significantly since March 2022.
We cannot assure you that in that event MBC Funding II will be able to repay all the Notes in full, or at all. The limited covenants in the Indenture and the terms of the Notes will not provide protection against significant events that could adversely impact MBC Funding II’s obligations under the Notes.
The limited covenants in the Indenture and the terms of the Notes will not provide protection against significant events that could adversely impact MBC Funding II’s obligations under the Notes.
For example, our board of directors may establish a series of common or preferred shares that could delay or prevent a transaction or a change in control that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders. 38 Our rights and the rights of our shareholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests.
For example, our board of directors may establish a series of common or preferred shares that could delay or prevent a transaction or a change in control that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders.
Liquidation of our assets may jeopardize our qualification for taxation as a REIT. To qualify for taxation as a REIT, we must comply with requirements regarding our assets and our sources of income.
This could have an adverse impact on the market price of our common shares. 31 Liquidation of our assets may jeopardize our qualification for taxation as a REIT. To qualify for taxation as a REIT, we must comply with requirements regarding our assets and our sources of income.
In that regard, we have observed a steady increase in interest rates on our debt which, if it continues, may have an impact on our income, as well as may impact the rate of our dividends.
Our primary interest rate exposures relate to the yield on our loan portfolio and the financing cost of our debt. In that regard, we have observed a steady increase in interest rates on our debt which, if rates continue to remain high, may have an impact on our income, as well as may impact the rate of our dividends.
This impact could result in reputational, competitive, operational or other business harm as well as financial costs and regulatory action. Risks Related to Our Portfolio Interest rate fluctuations could reduce our ability to generate income and may cause losses. Our primary interest rate exposures relate to the yield on our loan portfolio and the financing cost of our debt.
This impact could result in reputational, competitive, operational or other business harm as well as financial costs and regulatory action. See Item 1C. “ Cybersecurity ”, for additional information. 20 Risks Related to Our Portfolio Interest rate fluctuations could reduce our ability to generate income and may cause losses.
In addition, in the event of the bankruptcy of the borrower, we may not have full recourse to the assets of the borrower, or the assets of the borrower or the guarantor may not be sufficient to satisfy the debt.
In addition, in the event of the bankruptcy of the borrower, we may not have full recourse to the assets of the borrower, or the assets of the borrower or the guarantor may not be sufficient to satisfy the debt. 25 Liability relating to environmental matters may impact the value of properties that we may acquire or the properties underlying our investments.
We cannot assure you that our assessments will always be accurate or the circumstances relating to a borrower or the collateral will not change during the loan term, which could lead to losses and write-offs. Losses and write-offs could materially and adversely affect our business, operations and financial condition and the market price of our securities.
Loan decisions are typically made based on the credit-worthiness of the borrower and the value of the collateral securing the loan. We cannot assure you that our assessments will always be accurate or the circumstances relating to a borrower or the collateral will not change during the loan term, which could lead to losses and write-offs.
In making these decisions we may be conflicted by our obligations to our shareholders and our obligations to the Noteholders. We cannot assure you that the decisions we ultimately make will be in the best interest of the Noteholders.
In making these decisions we may be conflicted by our obligations to our shareholders and our obligations to the Noteholders.
Our board of directors may periodically review our underwriting guidelines but will not, and will not be required to, review all of our proposed loans. In conducting periodic reviews, our board of directors will rely primarily on information provided to them by management.
Our board of directors may periodically review our underwriting guidelines but will not, and will not be required to, review all of our proposed loans.
Dividends paid by REITs are not generally eligible for reduced rates applicable to “qualified” dividends paid by other corporations, but are taxed at the same rate as ordinary income.
Dividends paid by REITs do not qualify for the reduced tax rates on dividend income from regular corporations, which could adversely affect the value of our common shares. Dividends paid by REITs are not generally eligible for reduced rates applicable to “qualified” dividends paid by other corporations but are taxed at the same rate as ordinary income.
Risks Related to REIT Status and Investment Company Act Exemption Our investments in construction loans require us to make estimates about the fair value of land improvements that may be challenged by the IRS.
Our board of directors may adopt leverage policies at any time without the consent of our shareholders, which could result in a portfolio with a different risk profile. 28 Risks Related to REIT Status and Investment Company Act Exemption Our investments in construction loans require us to make estimates about the fair value of land improvements that may be challenged by the IRS.
Historically, the price at which our common shares trade on The Nasdaq Capital Market has been extremely volatile and seemingly unrelated to our operating performance In 2021, the range was $4.89 to $8.05. In 2022, the range was $5.07 to $6.48. These broad market fluctuations may adversely affect the trading price of our common shares.
The price of our common shares is volatile, and purchasers of our common shares could incur substantial losses. Historically, the price at which our common shares trade on The Nasdaq Capital Market has been volatile and seemingly unrelated to our operating performance. In 2022, the range was $5.07 to $6.48. In 2023, the range was $4.27 to $5.91.
However, as long as the borrowers are not in default of their obligations, MBC Funding II will not be deemed to be in default of the debt coverage ratio covenant in the Indenture. 40 As the controlling shareholder of MBC Funding II, we have an inherent conflict of interest and we may not always act in the best interests of the Noteholders.
However, as long as the borrowers are not in default of their obligations, MBC Funding II will not be deemed to be in default of the debt coverage ratio covenant in the Indenture.
As a result, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the outstanding loan balance. 24 The geographic concentration of our loan portfolio may make our revenues and the values of the mortgages and real estate securing our portfolio vulnerable to adverse changes in economic conditions around the New York metropolitan area.
The geographic concentration of our loan portfolio may make our revenues and the values of the mortgages and real estate securing our portfolio vulnerable to adverse changes in economic conditions around the New York metropolitan area.
New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to remain qualified for taxation as a REIT or the tax consequences of such qualification. 35 We may be unable to generate sufficient cash flows from our operations to make distributions to our shareholders at any time in the future.
We cannot predict how changes in the tax laws might affect us or our shareholders. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to remain qualified for taxation as a REIT or the tax consequences of such qualification.
We may change our investment, leverage, financing and operating strategies, policies or procedures without shareholder consent, which may adversely affect the market value of our common shares and our ability to make distributions to shareholders.
We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. 16 We may change our investment, leverage, financing and operating strategies, policies or procedures without shareholder consent, which may adversely affect the market value of our common shares and our ability to make distributions to shareholders.
In addition, if a significant number of our shareholders determine to sell our common shares in order to pay taxes owed on dividends, such sales may put downward pressure on the trading price of our common shares. 34 Dividends paid by REITs do not qualify for the reduced tax rates on dividend income from regular corporations, which could adversely affect the value of our common shares.
In addition, if a significant number of our shareholders determine to sell our common shares in order to pay taxes owed on dividends, such sales may put downward pressure on the trading price of our common shares.
Liability relating to environmental matters may impact the value of properties that we may acquire or the properties underlying our investments. Under various U.S. federal, state and local laws, an owner or operator of real property may become liable for the costs of removal of certain hazardous substances released on its property.
Under various U.S. federal, state and local laws, an owner or operator of real property may become liable for the costs of removal of certain hazardous substances released on its property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances.
The illiquidity of our loan portfolio may make it difficult for us to sell such assets if the need or desire arises.
The illiquidity of our loan portfolio may make it difficult for us to sell such assets if the need or desire arises. As a result, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the outstanding loan balance.
These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances. The presence of hazardous substances may adversely affect an owner’s ability to sell real estate or borrow using real estate as collateral.
The presence of hazardous substances may adversely affect an owner’s ability to sell real estate or borrow using real estate as collateral.
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.
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.
Our ability to make distributions may be adversely affected by a number of factors, including the risk factors described in this Report.
We intend to satisfy this requirement through quarterly distributions of all or substantially all of our REIT taxable income in such year, subject to certain adjustments. Our ability to make distributions may be adversely affected by a number of factors, including the risk factors described in this Report.
To the extent that we are nevertheless able to incur additional indebtedness or such other obligations, the risks associated with our indebtedness described above, including our possible inability to service our debt, will increase. 21 While we are implementing protocols to prevent future cyber-security incidents, these protocols may not prevent future incidents and any significant similar future incidents could expose us to liability and have a negative impact on our business and our reputation.
While we are implementing protocols to prevent future cyber-security incidents, these protocols may not prevent future incidents and any significant similar future incidents could expose us to liability and have a negative impact on our business and our reputation.
As of December 31, 2022, Assaf Ran, our Chief Executive Officer, beneficially owned 22.6% of our outstanding shares. Thus, Mr. Ran currently has and will continue to exercise significant control over all corporate actions. This concentration of ownership could have an adverse impact on the market price of our common shares.
Risks Related to Our Common Shares Our largest shareholder’s interests may not always be aligned with the interests of our other shareholders. As of December 31, 2023, Assaf Ran, our Chief Executive Officer, beneficially owned 22.8% of our outstanding shares. Thus, Mr. Ran currently has and will continue to exercise significant control over all corporate actions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe this facility is adequate to meet our requirements at our current level of business activity.
Biggest changeWe believe this facility is adequate to meet our requirements at our current level of business activity. Item 3. Legal Proceedings None. Item 4. Mine Safety Disclosure Not applicable. 42 PART II
Item 2. Properties Our executive and principal operating office is located in Great Neck, New York. We use this space for all of our operations. This space is occupied under a lease, as amended, that expires November 30, 2027. The current monthly rent is $5,053, including electricity and real estate taxes.
Item 2. Properties Our executive and principal operating office is located in Great Neck, New York. We use this space for all of our operations. This space is occupied under a lease, as amended, that expires November 30, 2027. The current monthly rent is $5,190, including electricity and real estate taxes.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+3 added−0 removed3 unchanged
Biggest changeFor tax reporting purposes, taxable income dividends/distributions and non-taxable return of capital distributions may result and will be reported as such to U.S. individual taxpayers on Form 1099-DIV. For the tax year of 2022, 100% of our total distributions are characterized as non-qualified dividends (Section 199A). Item 6. [Reserved.]
Biggest changeFor tax reporting purposes, taxable income dividends/distributions and non-taxable return of capital distributions may result and will be reported as such to U.S. individual taxpayers on Form 1099-DIV. For the tax year of 2023, 100% of our total distributions are characterized as non-qualified dividends (Section 199A).
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. Holders As of March 3, 2023, the number of registered holders of our common shares was 11 and the estimated number of beneficial owners of our common shares was approximately 6,400.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. Holders As of March 4, 2024, the number of registered holders of our common shares was 10 and the estimated number of beneficial owners of our common shares was approximately 5,500.
Added
Issuer Purchases of Equity Securities On April 11, 2023, our board of directors authorized a share buyback program for the repurchase of up to 100,000 of our common shares in the next twelve months. As of December 31, 2023, we repurchased an aggregate of 54,294 common shares under this repurchase program, at an aggregate cost of approximately $262,000.
Added
An additional 2,000 shares were repurchased between January 1, 2024 and March 4, 2024, in the aggregate amount of approximately $10,000. As set forth in the table below, during the quarter ended December 31, 2023, we repurchased 16,434 of our common shares under the share buyback program at an aggregate cost of $75,977.
Added
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 October 2023 7,500 $ 4.61 7,500 54,640 November 2023 2,366 $ 4.45 2,366 52,274 December 2023 6,568 $ 4.70 6,568 45,706 Total 16,434 $ 4.62 16,434 45,706 43 Item 6. [Reserved.]

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [Reserved] 46 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 46 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 54 Item 8. Financial Statements and Supplementary Data 54 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 54 Item 9A. Controls and Procedures 54 Item 9B.
Biggest changeItem 6. [Reserved] 44 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 44 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 51 Item 8. Financial Statements and Supplementary Data 51 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 51 Item 9A. Controls and Procedures 51 Item 9B.
Removed
Other Information 55 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 55 PART III 56 Item 10. Directors, Executive Officers and Corporate Governance 56 Item 11. Executive Compensation 60 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholders Matters 63 Item 13. Certain Relationships and Related Transactions and Director Independence 63 Item 14.
Removed
Principal Accountant Fees and Services 64 PART IV 65 Item 15. Exhibits and Financial Statement Schedules 65 Item 16. Form 10-K Summary 66 SIGNATURES 67 2 FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K (“Report”) contains forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Removed
Forward-looking statements are typically identified by the words “believe,” “expect,” “intend,” “estimate” and similar expressions.
Removed
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.
Removed
These forward-looking statements are not guarantees of future performance and involve risks and uncertainties.
Removed
Actual results may differ materially from those projected, expressed or implied in the forward-looking statements as a result of various factors (such factors are referred to herein as “Cautionary Statements”), including but not limited to the following: (i) our loan origination activities, revenues and profits are limited by available funds; (ii) we operate in a highly competitive market and competition may limit our ability to originate loans with favorable interest rates; (iii) our Chief Executive Officer is critical to our business and our future success may depend on our ability to retain him; (iv) if we overestimate the yields on our loans or incorrectly value the collateral securing the loan, we may experience losses; (v) we may be subject to “lender liability” claims; (vi) our due diligence may not uncover all of a borrower’s liabilities or other risks to its business; (vii) borrower concentration could lead to significant losses; (viii) we may choose to make distributions in our own stock, in which case you may be required to pay income taxes in excess of the cash dividends you receive; and (ix) an increase in interest rates may impact our profitability.
Removed
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.
Removed
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.
Removed
Unless the context otherwise requires, all references in this Report to “Manhattan Bridge Capital,” “the Company,” “we,” “us” and “our” refer to Manhattan Bridge Capital, Inc., a New York corporation, and its consolidated subsidiary, MBC Funding II Corp. (“MBC Funding II”), a New York corporation. 3 PART I

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

31 edited+9 added−11 removed40 unchanged
Biggest changeThe 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.
Biggest changeThe interest rates relating to the Webster Credit Line equal (i) SOFR plus a premium, which rate aggregated approximately 8.96%, including a 0.5% agency fee, as of December 31, 2023, or (ii) a Base Rate (as defined in the Amended and Restated Credit Agreement) plus 2.00% and a 0.5% agency fee, as chosen by the Company for each drawdown. 48 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.
If the total of the undiscounted cash flows is less than the carrying amount of these assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. There are also areas in which in management’s judgment in selecting any available alternative would not produce a materially different result.
If the total of the undiscounted cash flows is less than the carrying amount of these assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. 46 There are also areas in which in management’s judgment in selecting any available alternative would not produce a materially different result.
Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements. 46 Overview We are a New York-based real estate finance company taxed as a REIT that specializes in originating, servicing and managing a portfolio of first mortgage loans.
Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements. Overview We are a New York-based real estate finance company taxed as a REIT that specializes in originating, servicing and managing a portfolio of first mortgage loans.
Our lending policy limits the maximum amount of any loan to the lower of (i) 9.9% of the aggregate amount of our loan portfolio (not including the loan under consideration) and (ii) $3.5 million. Our loans typically have a maximum initial term of 12 months bearing interest at a fixed rate of 9% to 12% per year.
Our lending policy limits the maximum amount of any loan to the lower of (i) 9.9% of the aggregate amount of our loan portfolio (not including the loan under consideration) and (ii) $3.5 million. Our loans typically have a maximum initial term of 12 months bearing interest at a fixed rate of 9% to 13.5% per year.
Net cash provided by financing activities for the year ended December 31, 2022 reflects the net proceeds from the Webster Credit Line of an aggregate of approximately $9,348,000, offset by the dividend payments of approximately $5,747,000 and deferred financing costs of approximately $36,000.
Net cash provided by financing activities for the year ended December 31, 2022, reflects net proceeds from the Webster Credit Line of an aggregate of approximately $9,348,000, offset by dividend payments of approximately $5,747,000 and cash paid for deferred financing costs of approximately $36,000.
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. 52 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.
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. 49 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.
In addition, the terms of the personal guaranty provided by Mr. Ran were amended such that the potential sums owed under such guaranty will not exceed the sum of $1,000,000 plus any costs relating to the enforcement of the personal guaranty. We were in compliance with all covenants of the Webster Credit Line, as amended, as of December 31, 2022.
In addition, the terms of the personal guaranty provided by Mr. Ran were amended such that the potential sums owed under such guaranty will not exceed the sum of $1,000,000 plus any costs relating to the enforcement of the personal guaranty. We were in compliance with all covenants of the Webster Credit Line, as amended, as of December 31, 2023.
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.
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.
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 December 31, 2022.
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 December 31, 2023.
Ran, as guarantor, to (i) extend the maturity date of the credit line by three years to February 28, 2026; (ii) transition the applicable benchmark from LIBOR to Secured Overnight Financing Rate Data (“SOFR”) and adjust the applicable margin with respect to Base Rate Loans and SOFR Loans; (iii) update the required calculation with respect to the fixed charge coverage ratio covenant; (iv) further increase the limit on individual loans and the concentration of any mortgagor (together with guarantors and other related entities and affiliates); and (v) eliminate the requirement to pledge an additional mortgage loans as collateral for the credit line.
Ran, as guarantor, to (i) extend the maturity date of the credit line by three years to February 28, 2026; (ii) transition the applicable benchmark from LIBOR to SOFR and adjust the applicable margin with respect to Base Rate Loans and SOFR Loans; (iii) update the required calculation with respect to the fixed charge coverage ratio covenant; (iv) further increase the limit on individual loans and the concentration of any mortgagor (together with guarantors and other related entities and affiliates); and (v) eliminate the requirement to pledge an additional mortgage loans as collateral for the credit line.
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.
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.
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. 53
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 at the right condition. 50
We have 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.
We have experienced a slowdown in the deployment of capital and lower demand for new loans. We are increasing the interest rates charged on our commercial loans in order to offset our increased interest costs.
In 2022, approximately $6,773,000 of our revenue represents interest income on secured, real estate loans that we offer to real estate investors compared to approximately $5,609,000 in 2021, and approximately $1,798,000 represents origination fees on such loans, compared to approximately $1,199,000 in 2021.
In 2023, approximately $7,976,000 of our revenue represents interest income on secured, real estate loans that we offer to real estate investors compared to approximately $6,773,000 in 2022, and approximately $1,820,000 represents origination fees on such loans, compared to approximately $1,798,000 in 2022.
Interest income from commercial loans is recognized, as earned, over the loan period. 48 Origination fee revenue on commercial loans is amortized over the term of the respective note. Effective January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326).
Origination fee revenue on commercial loans is amortized over the term of the respective note. Effective January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326).
The increase in net cash provided by operating activities primarily resulted from the increases in net income, accounts payable and accrued expenses, and amortization of deferred financing costs, and an increase in deferred origination fees, partially offset by the increase in interest receivable on loans.
The increase in net cash provided by operating activities primarily resulted from the increases in net income and deferred origination fees, partially offset by the changes in interest receivable on loans as well as accounts payable and accrued expenses.
At December 31, 2022, the outstanding amount under the Amended and Restated Credit Agreement was $24,994,234. The interest rate on the amount outstanding fluctuates daily. The rate, including a 0.5% agency fee, for December 31, 2022 was approximately 8.39%. MBC Funding II has $6,000,000 of outstanding principal amount of Notes.
At December 31, 2023, the outstanding amount under the Amended and Restated Credit Agreement was $25,152,338. The interest rate on the amount outstanding fluctuates daily. The rate, including a 0.5% agency fee, as of December 31, 2023 was approximately 8.96%. MBC Funding II has $6,000,000 of outstanding principal amount of Notes.
General and administrative expenses General and administrative expenses for the year ended December 31, 2022 were approximately $1,549,000, compared to approximately $1,349,000 for the year ended December 31, 2021, an increase of $200,000, or 14.8%.
General and administrative expenses General and administrative expenses for the year ended December 31, 2023, were approximately $1,825,000, compared to approximately $1,549,000 for the year ended December 31, 2022, an increase of $276,000, or 17.8%.
When we renew or extend a loan we receive additional “points” and other fees. 47 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.
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.
Management will base the use of estimates on (a) a preset number of assumptions that consider past experience, (b) future projections, and (c) general financial market conditions. Actual amounts could differ from those estimates.
Management will base the use of estimates on (a) a preset number of assumptions that consider past experience, (b) future projections, and (c) general financial market conditions. Actual amounts could differ from those estimates. Interest income from commercial loans is recognized, as earned, over the loan period.
For the year ended December 31, 2022, net cash used in investing activities was approximately $8,771,000, compared to approximately $7,617,000 for the year ended December 31, 2021.
For the year ended December 31, 2023, net cash provided by investing activities was approximately $1,430,000, compared to approximately $8,771,000 of net cash used in investing activities for the year ended December 31, 2022.
Liquidity and Capital Resources At December 31, 2022, we had cash of approximately $104,000, compared to approximately $143,000 at December 31, 2021. For the year ended December 31, 2022, net cash provided by operating activities was approximately $5,167,000, compared to approximately $4,599,000 for the year ended December 31, 2021.
For the year ended December 31, 2023, net cash provided by operating activities was approximately $5,608,000, compared to approximately $5,167,000 of net cash provided by operating activities for the year ended December 31, 2022.
Results of operations Years ended December 31, 2022 and 2021 Total revenue Total revenue for the year ended December 31, 2022 was approximately $8,571,000, compared to approximately $6,808,000 for the year ended December 31, 2021, an increase of $1,763,000, or 25.9%. The increase in revenue was due to an increase in lending operations.
Results of operations Years ended December 31, 2023 and 2022 Total revenue Total revenue for the year ended December 31, 2023, was approximately $9,796,000, compared to approximately $8,571,000 for the year ended December 31, 2022, an increase of $1,225,000, or 14.3%. The increase in revenue was due to higher interest rates charged on our commercial loans.
At December 31, 2022, we were committed to $8,580,822 in construction loans that can be drawn by our borrowers when certain conditions are met. To date, none of the loans previously made have been non-collectable, although no assurances can be given that existing or future loans may not prove to be non-collectible or foreclosed in the future.
To date, none of the loans previously made have been non-collectable, although no assurances can be given that existing or future loans may not prove to be non-collectible or foreclosed in the future.
Net cash used in investing activities for the year ended December 31, 2021 consisted of the issuance of our short term commercial loans of approximately $49,268,000, offset by collection of our commercial loans of approximately $41,650,000. 50 For the year ended December 31, 2022, net cash provided by financing activities was approximately $3,565,000, compared to approximately $2,701,000 for the year ended December 31, 2021.
For the year ended December 31, 2023, net cash used in financing activities was approximately $5,450,000, compared to approximately $3,565,000 of net cash provided by financing activities for the year ended December 31, 2022.
Since commencing this business in 2007, we have made over 1,130 loans and never foreclosed on a property although sometimes we have renewed or extended our loans to enable the borrower to avoid premature sale or refinancing of the property.
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. 44 Since commencing this business in 2007, we have made over 1,220 loans and never foreclosed on a property, except as set forth below, although sometimes we have renewed or extended our loans to enable the borrower to avoid premature sale or refinancing of the property.
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.
The increase is primarily attributable to the increase in interest expense due to higher interest rates and increases in amounts borrowed relating to the use of the Webster Credit Line. (See Note 5 to the financial statements included elsewhere in this Report).
The loans are principally secured by collateral consisting of real estate and accompanied by personal guarantees from the principals of the borrowers. 49 Interest and amortization of deferred financing costs Interest and amortization of deferred financing costs for the year ended December 31, 2022 were approximately $1,823,000, compared to approximately $1,046,000 for the year ended December 31, 2021, an increase of $777,000, or 74.3%.
Interest and amortization of deferred financing costs Interest and amortization of deferred financing costs for the year ended December 31, 2023, were approximately $2,526,000, compared to approximately $1,823,000 for the year ended December 31, 2022, an increase of $703,000, or 38.6%.
We guarantee MBC Funding II’s obligations under the Notes, which are secured by our pledge of 100% of the outstanding common shares of MBC Funding II that we own. On July 9, 2021, we completed an underwritten public offering of 1,875,000 common shares at a public offering price of $7.20 per share.
We guarantee MBC Funding II’s obligations under the Notes, which are secured by our pledge of 100% of the outstanding common shares of MBC Funding II that we own. On April 11, 2023, our board of directors authorized a share buyback program for the repurchase of up to 100,000 of our common shares in the next twelve months.
Net cash provided by financing activities for the year ended December 31, 2021 reflects the net proceeds from the public offering, as described below, of approximately $12,354,000, offset by the repayment of the Webster Credit Line of an aggregate of approximately $4,663,000 and the dividend payments of approximately $4,990,000.
Net cash used in financing activities for the year ended December 31, 2023, reflects dividend payments of approximately $5,308,000, purchase of treasury shares of approximately $262,000 and cash paid for deferred financing costs of approximately $38,000, offset by proceeds from the Webster Credit Line of approximately $158,000.
Net income Net income for the year ended December 31, 2022 was approximately $5,212,000, compared to approximately $4,423,000 for the year ended December 31, 2021, an increase of $789,000, or 17.8%. This increase is primarily attributable to the increase in revenue, partially offset by the increases in interest expense and in general and administrative expenses.
Net income Net income for the year ended December 31, 2023, was approximately $5,476,000, compared to approximately $5,212,000 for the year ended December 31, 2022, an increase of $264,000, or 5.1%.
Removed
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.
Added
When we renew or extend a loan, we receive additional “points” and other fees. During February 2023, the Company sold one of its loans receivable to a third-party investor at its face value of $485,000. Mr. Assaf Ran, the Company’s President and Chief Executive Officer, participated in such acquisition in the amount of $152,000.
Removed
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, and gradually increased through December 2022. (See Notes 5 and 9 to the financial statements included elsewhere in this Report).
Added
In addition, in June 2023, the Company filed a foreclosure lawsuit relating to one property, as a result of a deed transfer from the borrower to a buyer without the Company’s consent.
Removed
The increase is primarily attributable to increases in payroll, advertising, appraisal and Nasdaq listing expenses and a voluntary waiver from our Chief Executive Officer of his base salary for the fourth quarter of 2021, partially offset by a decrease in insurance expenses.
Added
In that instance, the buyer of the property on which the Company had a valid mortgage suffered a data breach which resulted in the failure of the buyer to remit the funds needed for the loan payoff. In October 2023, the Company received the entire payoff amount for the loan receivable, including all unpaid fees, to rectify the situation.
Removed
As of December 31, 2022, the interest rates relating to the Webster Credit Line equaled (i) LIBOR plus a premium, which rate aggregated approximately 8.39%, including a 0.5% agency fee, 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.
Added
We also use construction inspectors. 45 As of December 31, 2023, we were committed to $7,978,089 in construction loans that can be drawn by our borrowers when certain conditions are met.
Removed
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.
Added
The loans are principally secured by collateral consisting of real estate and accompanied by personal guarantees from the principals of the borrowers.
Removed
On July 2, 2021, we entered into a consent and amendment letter agreement, with respect to the Amended and Restated Credit Agreement, with the Lenders and Assaf Ran, as guarantor, to amend the definition of “Change of Control” to provide that Mr.
Added
This increase is primarily attributable to a special bonus to officers for extending the Webster Credit Line as well as an annual bonus in 2023, totaling approximately $195,000, and increases in marketing, insurance, travel and meals expenses, partially offset by a decrease in advertising expense.
Removed
Ran would be required to own at least 20%, instead of 27%, of the equity interests of the Company, on a fully diluted basis.
Added
This increase is primarily attributable to the increase in interest income from loans, partially offset by the increases in interest expense and in general and administrative expenses. 47 Liquidity and Capital Resources As of December 31, 2023 and 2022, we had cash of approximately $104,000, not including restricted cash, which mainly represents collections received, pending clearance, from the Company’s commercial loans and is primarily dedicated to the reduction of the Webster Credit Line.
Removed
On March 7, 2022, we entered into a waiver agreement (the “Waiver”) with respect to the Amended and Restated Credit Agreement, with the Lenders and Assaf 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.
Added
Net cash provided by investing activities for the year ended December 31, 2023, mainly consisted of collection of our commercial loans of approximately $57,736,000, offset by the issuance of our short-term commercial loans of approximately $56,301,000.
Removed
In addition, the Waiver also provided 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. 51 On April 25, 2022, we entered into an amendment with respect to the Amended and Restated Credit Agreement with the Lenders and Mr.
Added
As of December 31, 2023, we have purchased an aggregate of 54,294 common shares under this repurchase program, at an aggregate cost of approximately $262,000. Outlook The interest rate on the Notes is fixed and the interest rate under the Webster Credit Line is adjustable. The high level of SOFR rates adversely impacts our interest costs.
Removed
Ran, as guarantor, to increase the limit on individual loans as well as the concentration of any mortgagor (together with guarantors and other related entities and affiliates), and also permit the Company 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.
Removed
The gross proceeds from the offering were $13.5 million and the net proceeds were approximately $12.4 million, after deducting our underwriting discounts and commissions and offering expenses. Outlook The interest rate on the Notes is fixed and the interest rate under the Webster Credit Line is adjustable. The continued increase in SOFR rates adversely impacts our interest costs.

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