Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2020 | Jul. 23, 2020 | |
Cover [Abstract] | ||
Entity Registrant Name | MBC FUNDING II CORP. | |
Entity Central Index Key | 0001664740 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2020 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business Flag | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 100 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2020 |
Balance Sheets
Balance Sheets - USD ($) | Jun. 30, 2020 | Dec. 31, 2019 |
Assets | ||
Loans receivable | $ 7,634,712 | $ 7,885,465 |
Cash | 47,907 | 53,122 |
Interest receivable on loans | 67,211 | 60,902 |
Prepaid expense | 2,500 | |
Total assets | 7,752,330 | 7,999,489 |
Liabilities: | ||
Senior secured notes (net of deferred financing costs of $434,870 and $472,413) | 5,565,130 | 5,527,587 |
Due to parent company | 157,114 | 641,515 |
Accrued interest payable | 15,000 | 15,000 |
Total liabilities | 5,737,244 | 6,184,102 |
Stockholder's equity: | ||
Common shares - $.001 par value; 100 authorized, issued and outstanding | ||
Additional paid-in capital | 100 | 100 |
Retained earnings | 2,014,986 | 1,815,287 |
Total stockholder's equity | 2,015,086 | 1,815,387 |
Total liabilities and stockholder's equity | $ 7,752,330 | $ 7,999,489 |
Balance Sheets (Parenthetical)
Balance Sheets (Parenthetical) - USD ($) | Jun. 30, 2020 | Dec. 31, 2019 |
Statement of Financial Position [Abstract] | ||
Deferred financing costs | $ 434,870 | $ 472,413 |
Common stock, par value | $ .001 | $ .001 |
Common stock, shares authorized | 100 | 100 |
Common stock, shares issued | 100 | 100 |
Common stock, shares outstanding | 100 | 100 |
Statements of Operations (Unaud
Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Income Statement [Abstract] | ||||
Interest income from loans | $ 210,006 | $ 222,451 | $ 425,017 | $ 450,991 |
Total revenue | 210,006 | 222,451 | 425,017 | 450,991 |
Operating costs and expenses: | ||||
Interest and amortization of deferred financing costs | 108,771 | 108,771 | 217,543 | 217,543 |
General and administrative expenses | 3,251 | 3,365 | 7,130 | 6,690 |
Total operating costs and expenses | 112,022 | 112,136 | 224,673 | 224,233 |
Income before income tax expense | 97,984 | 110,315 | 200,344 | 226,758 |
Income tax expense | (645) | (572) | (645) | (572) |
Net income | $ 97,339 | $ 109,743 | $ 199,699 | $ 226,186 |
Statements of Changes in Stockh
Statements of Changes in Stockholder's Equity (Unaudited) - USD ($) | Common Stock [Member] | Additional Paid-in Capital [Member] | Retained Earnings [Member] | Total |
Balance at Dec. 31, 2018 | $ 100 | $ 1,372,566 | $ 1,372,666 | |
Balance, shares at Dec. 31, 2018 | 100 | |||
Net income for the period | 226,186 | 226,186 | ||
Balance at Jun. 30, 2019 | 100 | 1,598,752 | 1,598,852 | |
Balance, shares at Jun. 30, 2019 | 100 | |||
Balance at Mar. 31, 2019 | 100 | 1,489,009 | 1,489,109 | |
Balance, shares at Mar. 31, 2019 | 100 | |||
Net income for the period | 109,743 | 109,743 | ||
Balance at Jun. 30, 2019 | 100 | 1,598,752 | 1,598,852 | |
Balance, shares at Jun. 30, 2019 | 100 | |||
Balance at Dec. 31, 2019 | 100 | 1,815,287 | 1,815,387 | |
Balance, shares at Dec. 31, 2019 | 100 | |||
Net income for the period | 199,699 | 199,699 | ||
Balance at Jun. 30, 2020 | 100 | 2,014,986 | 2,015,086 | |
Balance, shares at Jun. 30, 2020 | 100 | |||
Balance at Mar. 31, 2020 | 100 | 1,917,647 | 1,917,747 | |
Balance, shares at Mar. 31, 2020 | 100 | |||
Net income for the period | 97,339 | 97,339 | ||
Balance at Jun. 30, 2020 | $ 100 | $ 2,014,986 | $ 2,015,086 | |
Balance, shares at Jun. 30, 2020 | 100 |
Statements of Cash Flows (Unaud
Statements of Cash Flows (Unaudited) - USD ($) | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
Cash flows from operating activities: | ||
Net income | $ 199,699 | $ 226,186 |
Adjustment to reconcile net income to net cash provided by operating activities | ||
Amortization of deferred financing costs | 37,543 | 37,543 |
Changes in operating assets and liabilities: | ||
Interest receivable on loans | (6,309) | (4,075) |
Prepaid expenses | (2,500) | (2,500) |
Net cash provided by operating activities | 228,433 | 257,154 |
Cash flows from financing activities: | ||
Repayment of amounts due to parent company, net | (233,648) | (283,430) |
Net cash used in financing activities | (233,648) | (283,430) |
Net decrease in cash | (5,215) | (26,276) |
Cash, beginning of period | 53,122 | 67,706 |
Cash, end of period | 47,907 | 41,430 |
Supplemental Cash Flow Information: | ||
Taxes paid during the period | 645 | 572 |
Interest paid during the period | 180,000 | 180,000 |
Noncash Financing and Investing Activities: | ||
Assignments of loans from parent company | 4,148,385 | 2,578,965 |
Assigned loans repaid to parent company by borrowers | $ 4,399,138 | $ 2,570,000 |
The Company
The Company | 6 Months Ended |
Jun. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
The Company | 1. THE COMPANY The accompanying unaudited financial statements have been prepared by MBC Funding II Corp. (the “Company”), a New York corporation, formed in December 2015 as a wholly-owned subsidiary of Manhattan Bridge Capital, Inc., a New York corporation (“MBC”), in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the interim period are not necessarily indicative of the operating results to be attained in the entire fiscal year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. Interest income from mortgage loans held by the Company is recognized, as earned, over the loan period. Costs incurred in connection with the issuance of the senior secured notes are being amortized over ten years, using the straight-line method, as the difference between use of the effective interest method is not material. The Company was formed in December 2015 by MBC specifically for the purpose of conducting an initial public offering (“IPO”) of certain notes. On April 25, 2016, the Company completed the IPO of its 6% senior secured notes due April 22, 2026 (the “Notes”). Prior to the consummation of the IPO, the Company did not have any material operations. As of April 2016, the Company collects payments of interest on the mortgages it holds and uses those funds to make the required interest payments to the holders of the Notes (the “Noteholders”) and certain operating expenses. |
Recent Technical Accounting Pro
Recent Technical Accounting Pronouncements | 6 Months Ended |
Jun. 30, 2020 | |
Accounting Changes and Error Corrections [Abstract] | |
Recent Technical Accounting Pronouncements | 2. RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS In May 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief”, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of an allowance for credit losses. This ASU also allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The Company adopted both ASU 2016-13 and ASU 2019-05 effective January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s financial statements. In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU modifies Accounting Standards Codification 740 to remove certain exceptions and also add guidance to reduce complexity in certain areas. For companies that file with the Securities and Exchange Commission, the standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted but requires simultaneous adoption of all provisions of the new standard. The Company believes that the adoption of this guidance will not have a material impact on the Company’s financial statements. In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (“ASC 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. The amendments in the ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of this guidance did not have a material impact on the Company’s financial statements. Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the Company’s financial statements. |
Senior Secured Notes
Senior Secured Notes | 6 Months Ended |
Jun. 30, 2020 | |
Debt Disclosure [Abstract] | |
Senior Secured Notes | 3. SENIOR SECURED NOTES The Notes are 6% senior secured notes, due April 22, 2026, and have a principal amount of $1,000 each. On April 25, 2016, the Company issued Notes in the IPO in the aggregate principal amount of $6,000,000 under the Indenture, dated April 25, 2016, among the Company, as Issuer, MBC, as Guarantor, and Worldwide Stock Transfer LLC (“Worldwide”), as Indenture Trustee (the “Indenture”). The Notes are listed on the NYSE American and trade under the symbol “LOAN/26”. Interest accrues on the Notes commencing on May 16, 2016. The accrued interest is payable monthly in cash, in arrears, on the 15th day of each calendar month commencing June 2016. Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by the Company, together with the Company’s cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times. To the extent the aggregate principal amount of the mortgage loans owned by the Company plus the Company’s cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, the Company is required to repay, on a monthly basis, the principal amount of the Notes equal to the amount necessary such that, after giving effect to such repayment, the aggregate principal amount of all mortgage loans owned by the Company plus, the Company’s cash on hand at such time is equal to or greater than 120% of the outstanding principal amount of the Notes. For this purpose, each mortgage loan is deemed to have a value equal to its outstanding principal balance, unless the borrower is in default of its obligations. The Company may redeem the Notes, in whole or in part, at any time after April 22, 2019 upon at least 30 days prior written notice to the Noteholders. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest thereon up to, but not including, the date of redemption, without penalty or premium; provided that (i) if the Notes are redeemed on or after April 22, 2019 but prior to April 22, 2020, the redemption price will be 103% of the principal amount of the Notes redeemed and (ii) if the Notes are redeemed on or after April 22, 2020 but prior to April 22, 2021, the redemption price will be 101.5% of the principal amount of the Notes redeemed plus, in either case, the accrued but unpaid interest on the Notes redeemed up to, but not including, the date of redemption. No Notes were redeemed prior to April 22, 2020. Each Noteholder has the right to cause the Company to redeem his, her or its Notes on April 22, 2021. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest up to, but not including, the date of redemption, without penalty or premium. In order to exercise this right, the Noteholder must notify the Company, in writing, no earlier than November 22, 2020 and no later than January 22, 2021. All Notes that are subject to a proper and timely notice will be redeemed on April 22, 2021. Any Noteholder who fails to make a proper and timely election will be deemed to have waived his, her or its right to have his, her or its Notes redeemed prior to the maturity date. 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. |
Commercial Loans
Commercial Loans | 6 Months Ended |
Jun. 30, 2020 | |
Debt Disclosure [Abstract] | |
Commercial Loans | 4. COMMERCIAL LOANS The Company purchased from MBC a pool of mortgage loans, originated and funded by MBC, each of which is secured by first priority liens on real property, free and clear of all liens and other security interests (see Note 3). To the extent any of the mortgages are satisfied in full, such mortgages will be replaced with one or more mortgages with similar aggregate principal amount. At June 30, 2020, the pool of mortgage loans is comprised of 21 loans with an aggregate outstanding principal balance of $7,634,712. At December 31, 2019, the pool of mortgage loans was comprised of 23 loans with an aggregate outstanding principal balance of $7,885,465. The loans typically have a maximum initial term of 12 months, and bear interest at a fixed rate of 10% to 14% per year, and provide for receipt of interest only during the term of the loan and a balloon payment at the end of the term. Credit risk profile as of June 30, 2020 and December 31, 2019: Performing loans Developers-Residential Developers- Developers-Mixed Used Total outstanding loans June 30, 2020 $ 6,069,850 $ 1,564,862 $ — $ 7,634,712 December 31, 2019 $ 5,595,465 $ 1,825,000 $ 465,000 $ 7,885,465 At June 30, 2020, loans receivable from three borrowers represented 18.1% of total loans receivable. One individual personally guarantees all three loans and is the sole owner of two of those borrowers. At December 31, 2019, loans receivable from one borrower represented 10.1% of total loans receivable. |
Due to Parent Company
Due to Parent Company | 6 Months Ended |
Jun. 30, 2020 | |
Related Party Transactions [Abstract] | |
Due to Parent Company | 5. DUE TO 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 amount due to MBC principally represents the costs paid by MBC on behalf of the Company in connection with the Notes issuance plus the additional 20% of the required security. 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 distributed to MBC or held by the Company, to be used for working capital and general corporate purposes. |
Covid-19
Covid-19 | 6 Months Ended |
Jun. 30, 2020 | |
Subsequent Events [Abstract] | |
Covid-19 | 6. COVID-19 As a result of the COVID-19 pandemic, the Company may experience difficulties collecting monthly interest on time from its borrowers, property values may decline and certain of its loans may need to be extended. For example, two of MBC’s long term borrowers requested forbearance agreements, due to the impact of the COVID-19 pandemic, deferring two to three months of interest payments to payoff and MBC agreed to accommodate the request. 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. |
Commercial Loans (Tables)
Commercial Loans (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Debt Disclosure [Abstract] | |
Schedule of Credit Risk | Credit risk profile as of June 30, 2020 and December 31, 2019: Performing loans Developers-Residential Developers- Developers-Mixed Used Total outstanding loans June 30, 2020 $ 6,069,850 $ 1,564,862 $ — $ 7,634,712 December 31, 2019 $ 5,595,465 $ 1,825,000 $ 465,000 $ 7,885,465 |
The Company (Details Narrative)
The Company (Details Narrative) - 6% Senior Secured Notes [Member] | Apr. 25, 2016 |
Initial public offering for debt description | The Company completed the IPO of its 6% senior secured notes due April 22, 2026 (the "Notes"). |
Debt instrument maturity date | Apr. 22, 2026 |
Senior Secured Notes (Details N
Senior Secured Notes (Details Narrative) - USD ($) | Apr. 25, 2016 | Jun. 30, 2020 | Dec. 31, 2019 |
Senior notes | $ 5,565,130 | $ 5,527,587 | |
Senior secured notes, required security description | The loans typically have a maximum initial term of 12 months, and bear interest at a fixed rate of 10% to 14% per year, and provide for receipt of interest only during the term of the loan and a balloon payment at the end of the term. | ||
On or After April 22, 2019 But Prior To April 22. 2020 [Member] | |||
Debt instrument, redemption price, percentage | 103.00% | ||
On or After April 22, 2020 But Prior To April 22, 2021 [Member] | |||
Debt instrument, redemption price, percentage | 101.50% | ||
April 22, 2021 [Member] | |||
Debt instrument, redemption, description | The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest thereon up to, but not including, the date of redemption, without penalty or premium; provided that (i) if the Notes are redeemed on or after April 22, 2019 but prior to April 22, 2020, the redemption price will be 103% of the principal amount of the Notes redeemed and (ii) if the Notes are redeemed on or after April 22, 2020 but prior to April 22, 2021, the redemption price will be 101.5% of the principal amount of the Notes redeemed plus, in either case, the accrued but unpaid interest on the Notes redeemed up to, but not including, the date of redemption. | ||
Change of Control [Member] | |||
Debt instrument, redemption price, percentage | 101.00% | ||
6% Senior Secured Notes [Member] | |||
Debt instrument maturity date | Apr. 22, 2026 | ||
Debt instrument, face amount | $ 1,000 | ||
Senior secured notes, required security description | Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by the Company, together with the Company's cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times. To the extent the aggregate principal amount of the mortgage loans owned by the Company plus the Company's cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, the Company is required to repay, on a monthly basis, the principal amount of the Notes equal to the amount necessary such that, after giving effect to such repayment, the aggregate principal amount of all mortgage loans owned by the Company plus, the Company's cash on hand at such time is equal to or greater than 120% of the outstanding principal amount of the Notes. For this purpose, each mortgage loan is deemed to have a value equal to its outstanding principal balance, unless the borrower is in default of its obligations. | ||
6% Senior Secured Notes [Member] | Indenture [Member] | |||
Senior notes | $ 6,000,000 |
Commercial Loans (Details Narra
Commercial Loans (Details Narrative) | 6 Months Ended | |
Jun. 30, 2020USD ($)Loans | Dec. 31, 2019USD ($)Loans | |
Debt Disclosure [Abstract] | ||
Number of loans | Loans | 21 | 23 |
Mortgage loans outstanding principal balance | $ | $ 7,634,712 | $ 7,885,465 |
Loan term | 1 year | |
Loans receivable fixed rates of interest | The loans typically have a maximum initial term of 12 months, and bear interest at a fixed rate of 10% to 14% per year, and provide for receipt of interest only during the term of the loan and a balloon payment at the end of the term. | |
Loans receivable percentage | 18.10% | 10.10% |
Commercial Loans - Schedule of
Commercial Loans - Schedule of Credit Risk (Details) - USD ($) | Jun. 30, 2020 | Dec. 31, 2019 |
Total outstanding loans | $ 7,634,712 | $ 7,885,465 |
Developers-Residential [Member] | ||
Total outstanding loans | 6,069,850 | 5,595,465 |
Developers-Commercial [Member] | ||
Total outstanding loans | 1,564,862 | 1,825,000 |
Developers-Mixed Used [Member] | ||
Total outstanding loans | $ 465,000 |
Due to Parent Company (Details
Due to Parent Company (Details Narrative) | 6 Months Ended |
Jun. 30, 2020 | |
Related Party Transactions [Abstract] | |
Debt instrument, collateral percentage | 120.00% |
Debt instrument, additional collateral percentage | 20.00% |