Manhattan Bridge Capital, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited consolidated results for the company and its wholly owned subsidiary. Manhattan Bridge makes short-term, real-estate-secured loans to investors in the New York metropolitan area, generally for property acquisition and construction.
Key financial results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $911,761 | $608,910 |
| Operating expenses | $436,165 | $292,528 |
| Operating income | $475,596 | $316,382 |
| Net income | $475,596 | $208,269 |
| Diluted earnings per share | $0.08 | $0.05 |
| Net cash from operating activities | $277,377 | $(29,030) |
- Revenue increased 49.8%, reflecting higher lending activity. Interest income rose to $756,750 from $507,371; origination fees rose to $155,011 from $101,539.
- Operating income increased about 50%. Operating margin was approximately 52.2%, compared with 52.0% in Q1 2014. Net income rose about 128%; Q1 2014 included $115,000 of income tax expense, while Q1 2015 reported none. Q1 2014 also included $6,887 of other income from real-estate option fees.
- Interest and debt-service-cost amortization increased 57.8% to $183,055, mainly due to borrowing used to expand lending. General and administrative expense increased 43.2% to $251,913, including a special officer bonus related to establishing the new credit line, plus higher payroll and consulting costs.
- Cash and cash equivalents were $256,282 at quarter-end, up from $47,676 at December 31, 2014. Working capital was approximately $6.89 million, down from approximately $8.85 million, primarily because some short-term loans were reclassified as long-term.
- Investing activities provided $271,520: $3.079 million of loan collections exceeded $2.807 million of new loan issuances. Financing activities used $340,291, including a $486,695 dividend and $90,556 of deferred financing costs.
- Total assets were $24.51 million and stockholders’ equity was $13.87 million. Loans receivable totaled $23.76 million: $17.01 million short term and $6.75 million long term.
Debt, lending portfolio, and material changes
- On February 27, 2015, the company repaid and terminated its Sterling National Bank facility and entered into a three-year Webster Business Credit line of up to $14 million, expiring February 27, 2018. The rate is either LIBOR plus 4.75% or Webster’s base commercial rate plus 3.25%, selected for each draw. Outstanding borrowings were $9,316,046 at March 31, 2015, bearing 4.928% interest. The facility is secured by mortgages and other collateral, includes financial and lending covenants, and is personally guaranteed by CEO Assaf Ran.
- Short-term loans payable were $1,095,620 at quarter-end, with stated rates of 8%–12%. Combined with the Webster line, reported borrowings were approximately $10.41 million.
- The loan portfolio is principally secured by real estate and generally accompanied by personal guarantees. Stated rates were 12%–15%, sometimes higher on an effective basis due to points or other upfront fees. Seven loans were jointly funded with unrelated entities; the company’s share was $2.34 million. No borrower represented more than 10% of outstanding loans.
- The company reported no loan impairments or provisions. Some loans had been extended beyond their original maturity dates; management said those borrowers were paying interest and that collateral is reevaluated before extensions. Subsequent to quarter-end, $445,000 of loans outstanding at March 31 was paid off.
- At March 31, the company had committed an additional $1.468 million in construction loans, drawable when specified conditions are met.
Outlook, risks, and contingencies
- Management expects current cash, the Webster facility, and operating cash flows to fund operations for the next 12 months, while anticipating increased working-capital needs as it pursues growth. No numerical earnings or revenue guidance was provided.
- The company stated that it intended to elect REIT status for tax year 2014 and believed it met the requirements. To maintain REIT qualification, it generally must distribute at least 90% of taxable income; undistributed income may be taxed, and failure to qualify could have material tax consequences. Management expected to file its 2014 tax return by September 15, 2015.
- Purchasers in the July 2014 public offering may have rescission rights because of a possible preliminary-prospectus distribution issue. Written rescission notice was due by July 28, 2015; the company said it intended to contest such claims. The filing does not provide a clear estimate of potential exposure.
- Key risks include loan defaults or collateral valuation shortfalls, borrower and market concentration, portfolio illiquidity, competition, dependence on the CEO, the company’s limited operating history as a REIT, and the possibility of failing REIT qualification. Management reported no loan defaults to date but gave no assurance against future losses.
- Management concluded disclosure controls were effective as of March 31, 2015; no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Whether the company completed its intended 2014 REIT election and met ongoing distribution and qualification requirements.
- Any rescission notices or litigation relating to the July 2014 offering, and the resulting cash exposure.
- Webster line availability, borrowing-base headroom, covenant compliance, interest-rate choices, and the CEO’s personal guarantee.
- Performance, collateral values, extensions, and collections for loans past original maturity, as well as the $1.468 million construction-loan commitment.
- Share-count changes: the balance sheet reports 6,089,089 shares outstanding at March 31, while the filing reports 6,096,089 outstanding as of May 1, 2015.