UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,March 31, 20222023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________________________________________________________ to _______________________________________ ____________________________
Commission File Number: 001-37726
MBC FUNDING II CORP.
(Exact name of registrant as specified in its charter)
| New York | 81-0758358 | |
| (State or other jurisdiction of | (I.R.S. Employer |
60 Cutter Mill Road, Great Neck, New York 11021
(Address of principal executive offices)
((516)516) 444-3400
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| 6% Senior Secured Notes, due April 22, 2026 | LOAN/26 | NYSE American LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of July 22, 2022,April 19, 2023, the Issuer had a total of shares of Common Stock, $.001 par value per share, outstanding.
MBC FUNDING II CORP.
TABLE OF CONTENTS
| Page Number | ||
| Part I | FINANCIAL INFORMATION | |
| Item 1. | ||
Balance Sheets as of | 3 | |
| 4 | ||
| 5 | ||
| 6 | ||
| 7 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 10 |
Item 4. | Controls and Procedures | 10 |
| Part II | ||
| Item 6. | Exhibits | 11 |
| SIGNATURES | 12 | |
| EXHIBITS | ||
| 1 |
Forward Looking Statements
This report contains forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are typically identified by the words “believe,” “expect,” “intend,” “estimate” and similar expressions. Those statements appear in a number of places in this report and include statements regarding our intent, belief or current expectations or those of our directors or officers with respect to, among other things, trends affecting our financial condition and results of operations and our business and growth strategies. These forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected, expressed or implied in the forward-looking statements as a result of various factors (such factors are referred to herein as “Cautionary Statements”), including but not limited to the risk factors discussed in more detail in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, as may be supplemented or amended from time to time, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 in this report. The accompanying information contained in this report, including the information set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, identifies important factors that could cause such differences. These forward-looking statements speak only as of the date of this report, and we caution potential investors not to place undue reliance on such statements. We undertake no obligation to update or revise any forward-looking statements. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements.
The terms “we”, “our”, “us”, or any derivative thereof, as used herein refer to MBC Funding II Corp., a New York corporation, and its predecessors.
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MBC FUNDING II CORP.
BALANCE SHEETS
| March 31, 2023 | December 31, 2022 | |||||||||||||||
| June 30, 2022 | December 31, 2021 | (unaudited) | (audited) | |||||||||||||
| (unaudited) | (audited) | |||||||||||||||
| Assets | ||||||||||||||||
| Loans receivable | $ | 7,850,250 | $ | 8,028,750 | $ | 7,949,250 | $ | 7,984,250 | ||||||||
| Cash | 67,341 | 61,374 | 41,090 | 39,146 | ||||||||||||
| Interest receivable on loans | 56,069 | 60,047 | 64,810 | 68,512 | ||||||||||||
| Due from parent company | 481,884 | 113,397 | 715,542 | 566,348 | ||||||||||||
| Prepaid expense | 2,500 | — | 3,750 | — | ||||||||||||
| Total assets | $ | 8,458,044 | $ | 8,263,568 | $ | 8,774,442 | $ | 8,658,256 | ||||||||
| Liabilities and Stockholder’s Equity | ||||||||||||||||
| Liabilities: | ||||||||||||||||
| Senior secured notes (net of deferred financing costs of $284,698 and $322,241, respectively) | $ | 5,715,302 | $ | 5,677,759 | ||||||||||||
| Senior secured notes (net of deferred financing costs of $228,384 and $247,155, respectively) | $ | 5,771,616 | $ | 5,752,845 | ||||||||||||
| Accrued expenses | 15,000 | 15,000 | 15,000 | 15,000 | ||||||||||||
| Total liabilities | 5,730,302 | 5,692,759 | 5,786,616 | 5,767,845 | ||||||||||||
| Stockholder’s equity: | ||||||||||||||||
| Common shares - $ par value; authorized, issued and outstanding | — | — | — | — | ||||||||||||
| Additional paid-in capital | 100 | 100 | 100 | 100 | ||||||||||||
| Retained earnings | 2,727,642 | 2,570,709 | 2,987,726 | 2,890,311 | ||||||||||||
| Total stockholder’s equity | 2,727,742 | 2,570,809 | 2,987,826 | 2,890,411 | ||||||||||||
| Total liabilities and stockholder’s equity | $ | 8,458,044 | $ | 8,263,568 | $ | 8,774,442 | $ | 8,658,256 | ||||||||
The accompanying notes are an integral part of these financial statements.
| 3 |
MBC FUNDING II CORP.
STATEMENTS OF OPERATIONS
(unaudited)
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
| Interest income from loans | $ | 188,313 | $ | 204,927 | $ | 382,225 | $ | 412,409 | $ | 210,580 | $ | 193,912 | ||||||||||||
| Total revenue | 188,313 | 204,927 | 382,225 | 412,409 | 210,580 | 193,912 | ||||||||||||||||||
| Operating costs and expenses: | ||||||||||||||||||||||||
| Interest and amortization of deferred financing costs | 108,771 | 108,771 | 217,543 | 217,543 | 108,771 | 108,771 | ||||||||||||||||||
| General and administrative expenses | 3,245 | 3,341 | 7,099 | 7,155 | 4,394 | 3,855 | ||||||||||||||||||
| Total operating costs and expenses | 112,016 | 112,112 | 224,642 | 224,698 | 113,165 | 112,626 | ||||||||||||||||||
| Income before income tax expense | 76,297 | 92,815 | 157,583 | 187,711 | ||||||||||||||||||||
| Income tax expense | (650 | ) | (647 | ) | (650 | ) | (647 | ) | ||||||||||||||||
| Net income | $ | 75,647 | $ | 92,168 | $ | 156,933 | $ | 187,064 | $ | 97,415 | $ | 81,286 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
| 4 |
MBC FUNDING II CORP.
STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
(unaudited)
FOR THE THREE MONTHS ENDED JUNE 30, 2022MARCH 31, 2023
| Shares | Amount | |||||||||||||||||||
| Common Stock | Additional Paid in Capital | Retained Earnings | Totals | |||||||||||||||||
| Shares | Amount | |||||||||||||||||||
| Balance, January 1, 2022 | 100 | $ | — | $ | 100 | $ | 2,651,995 | $ | 2,652,095 | |||||||||||
| Net income for the period | - | - | - | 75,647 | 75,647 | |||||||||||||||
| Balance, June 30, 2022 | 100 | $ | — | $ | 100 | $ | 2,727,642 | $ | 2,727,742 | |||||||||||
| Common Stock | Additional Paid in | Retained | ||||||||||||||||||
| Shares | Amount | Capital | Earnings | Totals | ||||||||||||||||
| Balance, January 1, 2023 | 100 | $ | — | $ | 100 | $ | 2,890,311 | $ | 2,890,411 | |||||||||||
| Net income for the period | - | - | - | 97,415 | 97,415 | |||||||||||||||
| Balance, March 31, 2023 | 100 | $ | — | $ | 100 | $ | 2,987,726 | $ | 2,987,826 | |||||||||||
FOR THE THREE MONTHS ENDED JUNE 30, 2021
| Common Stock | Additional Paid in Capital | Retained Earnings | Totals | |||||||||||||||||
| Shares | Amount | |||||||||||||||||||
| Balance, April 1, 2021 | 100 | $ | — | $ | 100 | $ | 2,300,497 | $ | 2,300,597 | |||||||||||
| Net income for the period | - | - | - | 92,168 | 92,168 | |||||||||||||||
| Balance, June 30, 2021 | 100 | $ | — | $ | 100 | $ | 2,392,665 | $ | 2,392,765 | |||||||||||
FOR THE SIX MONTHS ENDED JUNE 30,MARCH 31, 2022
| Common Stock | Additional Paid in Capital | Retained Earnings | Totals | Common Stock | Additional Paid in | Retained | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Totals | ||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022 | 100 | $ | — | $ | 100 | $ | 2,570,709 | $ | 2,570,809 | 100 | $ | — | $ | 100 | $ | 2,570,709 | $ | 2,570,809 | ||||||||||||||||||||||
| Balance | 100 | $ | — | $ | 100 | $ | 2,570,709 | $ | 2,570,809 | |||||||||||||||||||||||||||||||
| Net income for the period | - | - | - | 156,933 | 156,933 | - | - | - | 81,286 | 81,286 | ||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 100 | $ | — | $ | 100 | $ | 2,727,642 | $ | 2,727,742 | |||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | 100 | $ | — | $ | 100 | $ | 2,651,995 | $ | 2,652,095 | |||||||||||||||||||||||||||||||
| Balance | 100 | $ | — | $ | 100 | $ | 2,651,995 | $ | 2,652,095 | |||||||||||||||||||||||||||||||
FOR THE SIX MONTHS ENDED JUNE 30, 2021
| Common Stock | Additional Paid in Capital | Retained Earnings | Totals | |||||||||||||||||
| Shares | Amount | |||||||||||||||||||
| Balance, January 1, 2021 | 100 | $ | — | $ | 100 | $ | 2,205,601 | $ | 2,205,701 | |||||||||||
| Net income for the period | - | - | - | 187,064 | 187,064 | |||||||||||||||
| Balance, June 30, 2021 | 100 | $ | — | $ | 100 | $ | 2,392,665 | $ | 2,392,765 | |||||||||||
The accompanying notes are an integral part of these financial statements.
| 5 |
MBC FUNDING II CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
| 2022 | 2021 | Three Months Ended March 31, | ||||||||||||||
| Six Months Ended June 30, | 2023 | 2022 | ||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||
| Net income | $ | 156,933 | $ | 187,064 | $ | 97,415 | $ | 81,286 | ||||||||
| Adjustment to reconcile net income to net cash provided by operating activities | ||||||||||||||||
| Amortization of deferred financing costs | 37,543 | 37,543 | 18,771 | 18,771 | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Interest receivable on loans | 3,978 | 2,699 | 3,702 | 20,728 | ||||||||||||
| Prepaid expenses | (2,500 | ) | — | |||||||||||||
| Accrued expenses | — | 2,500 | ||||||||||||||
| Prepaid expense | (3,750 | ) | (3,750 | ) | ||||||||||||
| Net cash provided by operating activities | 195,954 | 229,806 | 116,138 | 117,035 | ||||||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Advances/repayment of amounts to parent company, net | (189,987 | ) | (229,703 | ) | ||||||||||||
| Advances to parent company, net | (114,194 | ) | (102,389 | ) | ||||||||||||
| Net cash used in financing activities | (189,987 | ) | (229,703 | ) | (114,194 | ) | (102,389 | ) | ||||||||
| Net increase in cash | 5,967 | 103 | 1,944 | 14,646 | ||||||||||||
| Cash, beginning of year | 61,374 | 48,913 | 39,146 | 61,374 | ||||||||||||
| Cash, end of period | $ | 67,341 | $ | 49,016 | $ | 41,090 | $ | 76,020 | ||||||||
| Supplemental Cash Flow Information: | ||||||||||||||||
| Taxes paid during the period | $ | 650 | $ | 647 | ||||||||||||
| Interest paid during the period | $ | 180,000 | $ | 180,000 | $ | 90,000 | $ | 90,000 | ||||||||
| Noncash Financing and Investing Activities: | ||||||||||||||||
| Assignments of loans from parent company | $ | 7,004,000 | $ | 7,414,150 | $ | 5,425,000 | $ | 5,821,500 | ||||||||
| Assigned loans repaid to parent company by borrowers | $ | 7,182,500 | $ | 7,190,862 | $ | 5,460,000 | $ | 5,863,500 | ||||||||
The accompanying notes are an integral part of these financial statements.
| 6 |
MBC FUNDING II CORP.
NOTES TO FINANCIAL STATEMENTSJune 30, 2022March 31, 2023
1. THE COMPANY
The accompanying unaudited financial statements have been prepared by MBC Funding II Corp. (the “Company”), a New York corporation, formed in December 2015 as a wholly-owned subsidiary of Manhattan Bridge Capital, Inc., a New York corporation (“MBC”), in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the interim period are not necessarily indicative of the operating results to be attained in the entire fiscal year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.
Interest income from mortgage loans held by the Company is recognized, as earned, over the loan period. Costs incurred in connection with the issuance of the senior secured notes are being amortized over ten years, using the straight-line method, as the difference between use of the effective interest method is not material.
The Company was formed in December 2015 by MBC specifically for the purpose of conducting an initial public offering (“IPO”) of certain notes. On April 25, 2016, the Company completed the IPO of its 6% senior secured notes due April 22, 2026 (the “Notes”).. Prior to the consummation of the IPO, the Company did not have any material operations. As of April 2016, the Company collects payments of interest on the mortgages it holds and uses those funds to make the required interest payments to the holders of the Notes (the “Noteholders”) and certain operating expenses.
2. RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the Company’s financial statements.
3. SENIOR SECURED NOTES
The Notes are 6% senior secured notes, due April 22, 2026, and have a principal amount of $1,000$1,000 each. On April 25, 2016, the Company issued Notes in the IPO in the aggregate principal amount of $6,000,000 under the Indenture, dated April 25, 2016, among the Company, as Issuer, MBC, as Guarantor, and Worldwide Stock Transfer LLC (“Worldwide”), as Indenture Trustee (the “Indenture”). The Notes are listed on the NYSE American and trade under the symbol “LOAN/26”. Interest accrues on the Notes commencing on May 16, 2016. The accrued interest is payable monthly in cash, in arrears, on the 15th day of each calendar month commencing June 2016.
Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by the Company, together with the Company’s cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times. To the extent the aggregate principal amount of the mortgage loans owned by the Company plus the Company’s cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, the Company is required to repay, on a monthly basis, the principal amount of the Notes equal to the amount necessary such that, after giving effect to such repayment, the aggregate principal amount of all mortgage loans owned by the Company plus, the Company’s cash on hand at such time is equal to or greater than 120% of the outstanding principal amount of the Notes. For this purpose, each mortgage loan is deemed to have a value equal to its outstanding principal balance, unless the borrower is in default of its obligationsobligations..
The Company may redeem the Notes, in whole or in part, at any time after April 22, 2019 upon at least 30 days prior written notice to the Noteholders. 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 the Company as of June 30, 2022.March 31, 2023.
| 7 |
Each Noteholder had the right to cause the Company to redeem his, her or its Notes on April 22, 2021 by notifying the Company in writing, no earlier than November 22, 2020 and no later than January 22, 2021. No Noteholder exercised such right during the required time frame and as such the Notes are no longer redeemable by the Noteholders.
The Company is obligated to offer to redeem the Notes if there occurs a “change of control” with respect to the Company or MBC or if the Company or MBC sell any assets unless, in the case of an asset sale, the proceeds are reinvested in the business of the seller. The redemption price in connection with a “change of control” will be 101% of the principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption. The redemption price in connection with an asset sale will be the outstanding principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption.
Our principal executive officers consist of Assaf Ran, who serves as our Chief Executive Officer and President, and Vanessa Kao, who serves as our Chief Financial Officer. Each of Mr. Ran and Ms. Kao serve in similar functions with our parent, MBC and own an aggregate of $704,000 and $288,000 of our Notes.
4. COMMERCIAL LOANS
The Company purchased from MBC a pool of mortgage loans, originated and funded by MBC, each of which is secured by first priority liens on real property, free and clear of all liens and other security interests (see Note 3). To the extent any of the mortgages are satisfied in full, such mortgages will be replaced with one or more mortgages with similar aggregate principal amount. At June 30,March 31, 2023, the pool of mortgage loans was comprised of 20 loans with an aggregate outstanding principal balance of $7,949,250. At December 31, 2022, the pool of mortgage loans iswas comprised of 14 loans with an aggregate outstanding principal balance of $7,850,250. At December 31, 2021, the pool of mortgage loans was comprised of 21 loans with an aggregate outstanding principal balance of $8,028,7507,984,250.
The loans typically have a maximum initial term of 12 months, and bear interest at a fixed rate of 8.5%9% to 10%12% per year, and provide for receipt of interest only during the term of the loan and a balloon payment at the end of the termterm..
Credit risk profile as of June 30, 2022March 31, 2023 and December 31, 2021:2022:
SCHEDULE OF CREDIT RISK
| Performing loans | Developers-Residential | Developers- Commercial | Developers-Mixed Use | Total outstanding loans | ||||||||||||
| June 30, 2022 | $ | 7,730,250 | $ | — | $ | 120,000 | $ | 7,850,250 | ||||||||
| December 31, 2021 | $ | 6,434,750 | $ | 1,050,000 | $ | 544,000 | $ | 8,028,750 | ||||||||
| Performing loans | Developers- Residential | Developers- Commercial | Developers- Mixed Use | Total outstanding loans | ||||||||||||
| March 31, 2023 | $ | 6,329,250 | $ | 1,500,000 | $ | 120,000 | $ | 7,949,250 | ||||||||
| December 31, 2022 | $ | 7,864,250 | $ | — | $ | 120,000 | $ | 7,984,250 | ||||||||
At June 30,March 31, 2023, loans receivable from one borrower represented 18.9% of total loans receivable, with two individuals personally guaranteeing the loan. In addition, loans receivable from one other borrower represented 13.3% of total loans receivable. One individual personally guarantees the loan and is the sole owner of the borrower. Furthermore, loans receivable from another borrower represented 10.8% of total loans receivable. One individual personally guarantees the loan and is the sole owner of the borrower.
At December 31, 2022, loans receivable from one borrower represented 26.826.3% of total loans receivable, with nine individuals personally guaranteeing the loan. In addition, loans receivable from one other borrower represented 15.915.7% of total loans receivable, with two individuals personally guaranteeing the loan. Furthermore, loans receivable from another borrower represented 13.413.2% of total loans receivable. One individual personally guarantees the loan and is the sole owner of the borrower.
At December 31, 2021, loans receivable from two borrowers represented 17.4% of total loans receivable. One individual personally guarantees both loans and is the sole owner of the borrowers. In addition, loans receivable from another borrower represented 13.1% of total loans receivable. One individual personally guarantees the loan and is the sole owner of the borrower.
5. DUE FROM PARENT COMPANY
The Company utilized the net proceeds from the IPO to purchase a pool of mortgage loans from MBC. Under the Indenture, the aggregate principal amount of the mortgage loans owned by the Company, plus the Company’s cash on hand, must always be equal to at least 120% of the outstanding principal amount of the Notes until the Notes are paid in full. The Company collects payments of interest on the mortgages the Company holds and uses those funds to make the required interest payments to the Noteholders and certain operating expenses. Any excess cash will be advanced or distributed to MBC or held by the Company, to be used for working capital and general corporate purposes. Amounts advanced to MBC are non-interest bearing and due on demand.
6. COVID-19
To date, the Company and MBC have not been materially impacted by the COVID-19 pandemic and will continue to closely monitor the impact of the COVID-19 pandemic on all aspects of their businesses. If the COVID-19 pandemic worsens in the geographic areas in which MBC operates, the pandemic could materially affect the Company’s financial and operational results.
********
| 8 |
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and notes thereto included in this Quarterly Report on Form 10-Q. The discussion and analysis contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements.
We are a wholly-owned subsidiary of Manhattan Bridge Capital, Inc., a New York corporation (“MBC”), and were formed in December 2015 specifically for the purpose of the initial public offering (“IPO”) of the Notes (described below). On April 25, 2016, we sold $6,000,000 aggregate principal amount of our 6% Senior Secured Notes, due April 22, 2026 (the “Notes”), in our IPO for net proceeds of $5,200,000, after deducting the underwriting discounts and commissions and other offering expenses. The Notes are secured by a first priority lien on all of our assets, including, primarily, mortgage notes, mortgages and other transaction documents entered into in connection with first mortgage loans originated and funded by MBC, which we acquired from MBC pursuant to an asset purchase agreement. Under the terms of the indenture governing the Notes (the “Indenture”), the aggregate outstanding principal balance of the mortgage loans held by us, together with our cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times until the Notes are paid in full. In addition, MBC has guaranteed our obligations under the Notes and has secured that guaranty with a pledge of all of our outstanding common shares.
The Notes are listed on the NYSE American and trade under the symbol “LOAN/26”.
To the extent any of the mortgages acquired from MBC are satisfied in full, such mortgages will be replaced with one or more mortgages with similar aggregate principal amount. At June 30, 2022,March 31, 2023, the pool of mortgage loans iswas comprised of 1420 loans with an aggregate outstanding principal balance of $7,850,250.$7,949,250.
Prior to the consummation of the IPO on April 25, 2016, we did not have any material operations. As of April 2016, we collect payments of interest on the mortgages we hold and use those funds to make the required interest payments to the holders of the Notes and certain operating expenses. Any excess cash will be distributed to MBC or held by us to be used for working capital and general corporate purposes.
Results of Operations
Three months ended June 30, 2022March 31, 2023 compared to three months ended June 30, 2021March 31, 2022
Total Revenue
Total revenues for the three months ended June 30,March 31, 2023 and 2022 and 2021 of approximately $188,000$211,000 and $205,000,$194,000, respectively, represent interest income on the secured commercial loans that we purchased from MBC. The decreaseincrease in revenue was primarily attributable to lowerhigher interest rates charged on such loans due to market conditions.conditions at the time the loans were originated or extended.
Interest and amortization of deferred financing costs
Interest and amortization of deferred financing costs for each of the three months ended June 30,March 31, 2023 and 2022 and 2021 of approximately $109,000 are attributable to the issuance of the Notes.
General and administrative expenses
General and administrative expenses for each of the three months ended June 30,March 31, 2023 and 2022 and 2021 of approximately $3,000$4,000 are comprised of fees paid to the Indenture trustee and NYSE American LLC, as well as bank fees.
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Six months ended June 30, 2022 compared to six months ended June 30, 2021
Total Revenue
Total revenues for the six months ended June 30, 2022 and 2021 of approximately $382,000 and $412,000, respectively, represent interest income on the secured commercial loans that we purchased from MBC. The decrease in revenue was primarily attributable to lower interest rates charged on such loans due to market conditions.
Interest and amortization of deferred financing costs
Interest and amortization of deferred financing costs for each of the six months ended June 30, 2022 and 2021 of approximately $218,000 are attributable to the issuance of the Notes.
General and administrative expenses
General and administrative expenses for each of the six months ended June 30, 2022 and 2021 of approximately $7,000 are comprised of fees paid to the Indenture trustee and NYSE American LLC, as well as bank fees.
Liquidity and Capital Resources
At June 30, 2022,March 31, 2023, we had cash of approximately $67,000$41,000 compared to cash of approximately $61,000$39,000 at December 31, 2021.2022.
Net cash provided by operating activities for the sixthree months ended June 30, 2022March 31, 2023 was approximately $196,000,$116,000, compared to approximately $230,000$117,000 for the sixthree months ended June 30, 2021.March 31, 2022. The decrease in net cash provided by operating activities primarily resulted from the reductionincrease in revenue.revenue and the decrease in interest receivable on loans. Net cash provided by operating activities for the six monthsthree month periods ended June 30,March 31, 2023 and 2022 and 2021 primarily resulted from our interest income and amortization of deferred financing costs.
Net cash used in financing activities for the sixthree months ended June 30, 2022March 31, 2023 was approximately $190,000,$114,000, compared to approximately $230,000$102,000 for the sixthree months ended June 30, 2021.March 31, 2022. The decreaseincrease in net cash used in financing activities primarily resulted from the reductionincrease in net income. Net cash used in financing activities for the six monthsthree month period ended June 30, 2021 reflected the repayment of amounts due to MBC in connection with loans purchased from MBC. Net cash used in financing activities for the six months ended June 30,March 31, 2023 and 2022 reflected advances of excess cash to MBC for working capital and general corporate purposes. Amounts advanced to MBC are non-interest bearing and due on demand.
We had no cash from or used in investing activities for the sixthree months ended June 30, 2022March 31, 2023 or 2021.2022.
Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by the Company, together with the Company’s cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times.
We anticipate that our current cash balances together with our cash flows from operations will be sufficient to fund our operations for the next 12 months.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. CONTROLS AND PROCEDURES
(a)Evaluation and Disclosure Controls and Procedures
Our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2022March 31, 2023 (the “Evaluation Date”). Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) are accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b)Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2022March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 6. EXHIBITS
| Exhibit No. | Description | |
| 31.1 | Chief Executive Officer Certification under Rule 13a-14 | |
| 31.2 | Chief Financial Officer Certification under Rule 13a-14 | |
| 32.1* | Chief Executive Officer Certification pursuant to 18 U.S.C. section 1350 | |
| 32.2* | Chief Financial Officer Certification pursuant to 18 U.S.C. section 1350 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Schema Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). |
* Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MBC Funding II Corp. (Registrant) | ||
| Date: | By: | /s/ Assaf Ran |
| Assaf Ran, President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: | By: | /s/ Vanessa Kao |
| Vanessa Kao, Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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