Manhattan Bridge Capital, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014; unaudited. The company originates, services and manages short-term, first-mortgage loans to real estate investors, primarily in the New York metropolitan area.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $630,082 | $553,795 | $1,238,992 | $1,088,156 |
| Operating income | $331,089 | $247,044 | $647,471 | $505,296 |
| Net income | $420,976 | $157,931 | $629,245 | $331,070 |
| Basic and diluted EPS | $0.10 | $0.04 | $0.15 | $0.08 |
| Operating margin | 52.5% | 44.6% | 52.3% | 46.4% |
Revenue growth reflected increased lending activity: loan interest income was $518,065 for Q2 and $1,025,436 for the first half; origination fees were $112,017 and $213,556, respectively. Q2 net income included an $83,000 income-tax benefit from reversing an accrued tax amount. For the first half, income-tax expense was $32,000, versus $188,000 in 2013.
Cash flow, balance sheet and debt
- At June 30, cash and cash equivalents were $135,495, down from $1,021,023 at December 31, 2013. Working capital was approximately $3.528 million, compared with $4.677 million at year-end.
- First-half operating cash flow was $367,654; investing cash use was $2,226,017, principally reflecting loan originations net of collections; financing cash provided was $972,835. Cash decreased by $885,528.
- Total assets were $17.730 million, including $16.921 million in short- and long-term loans receivable. Stockholders’ equity was $9.456 million.
- Debt included $6.6 million drawn on a bank line of credit (limit then $7 million) and $1.319 million in short-term loans. The line carried interest at 2% above prime, subject to a 6% floor, and was extended to October 29, 2014. The CEO provided a personal guarantee.
- The company had $1,555,500 of additional construction-loan commitments drawable when specified conditions are met.
Material changes, outlook and risks
- Compared with the first half of 2013, revenue rose 13.9% and net income rose 90.1%. Management attributed revenue growth to expanded lending. Higher borrowing costs partly offset growth; lower general and administrative costs supported operating income.
- On July 31, 2014, the company completed an offering of 1,754,386 shares at $2.85 per share, raising $5 million gross and approximately $4.3 million net. Underwriters received a 45-day option for up to 263,157 additional shares.
- The company stated that it believed it met REIT requirements and intended to elect REIT status for tax year 2014. REIT treatment generally requires distributions of at least 90% of taxable income; qualification and compliance are not assured.
- Management expected cash, offering proceeds, the credit line and operating cash flows to fund operations for the next 12 months. The filing provides no earnings or revenue guidance.
- Management reported no loan impairments or defaults to date. However, several commercial loans were extended past original maturities; borrowers were paying interest at quarter-end. The filing identifies risks including borrower concentration, collateral valuation, loan illiquidity, competition, limited funding, and dependence on the CEO.
- After quarter-end, $990,000 of commercial loans were paid off. The company also disclosed new short-term borrowings totaling $1.1 million at 12%–14% and a $200,000 CEO bridge loan at 6%; on July 31 it repaid a $700,000 loan and the CEO bridge loan.
Investor verification priorities
- Confirm REIT qualification, election, distribution requirements and the tax treatment underlying the $83,000 Q2 tax benefit.
- Review the credit-line maturity, borrowing availability, covenants, guarantee and post-quarter financing repayments.
- Assess loan extensions, collateral values, collection performance and the $1.556 million construction-loan commitment.
- Verify net offering proceeds, any over-allotment exercise and the resulting share-count dilution.