Manhattan Bridge Capital, Inc. — Q2 2013 Form 10-Q
Business and period. The company makes short-term, secured real-estate loans to investors in the New York metropolitan area. This unaudited report covers the quarter and six months ended June 30, 2013; balance-sheet comparisons are with December 31, 2012.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $553,795 | $414,561 | $1,088,156 | $806,387 |
| Operating income | $247,044 | $157,893 | $505,296 | $338,472 |
| Net income | $157,931 | $80,080 | $331,070 | $195,046 |
| Diluted EPS | $0.04 | $0.02 | $0.08 | $0.05 |
| Operating margin | 44.6% | 38.1% | 46.4% | 42.0% |
| Net margin | 28.5% | 19.3% | 30.4% | 24.2% |
- Revenue mix and growth: Q2 revenue rose 33.5% year over year; six-month revenue rose 35.0%. Interest income was $447,522 for Q2 and $892,301 for the half-year; origination fees were $106,273 and $195,855, respectively. Management attributed growth to increased lending.
- Cash flow: First-half operating cash flow was $248,613, compared with $115,960 in 2012. Investing used $558,634, versus $1,651,359; financing provided $1,163,701, versus $1,480,000. Cash increased by $853,680 to $1,094,373.
- Liquidity and assets: At June 30, cash was $1.09 million, working capital approximately $5.06 million, and total assets $15.76 million. Working capital was approximately $5.58 million at year-end 2012; management attributed the decline mainly to reclassifying loans as long-term.
- Loans and credit exposure: Loans receivable totaled $14.18 million: $10.79 million short-term and $3.39 million long-term. The filing reports all loans as performing, with no impairment provision. Three loans were jointly funded with other parties; the company’s share was $1.635 million. Loans to related borrower groups totaled $3.195 million, or 22.5% of the portfolio. No single borrower entity exceeded 10%.
- Debt: Current liabilities totaled $7.04 million, including a fully drawn $5.00 million Sterling bank line, $1.16 million of short-term loans, and $0.50 million of senior secured notes. The line bears interest at 2% above prime, subject to a 6% floor, and is guaranteed personally by the CEO. The notes bear 6.63% interest and were due in December 2013.
Changes, outlook, risks, and unusual items
- Q2 interest and debt-service costs rose to $101,560 from $58,932; first-half costs rose to $204,206 from $100,074. Management attributed the increase mainly to greater use of the Sterling line to expand lending capacity.
- The Sterling line was increased from $3.5 million to $5.0 million in January 2013. Its maturity was extended to July 1, 2014, effective after quarter-end.
- First-half loan originations were $8.43 million and collections were $7.87 million. Loans generally carry stated rates of 12%–15%, potentially higher on an effective basis after fees. The company had $2,467,950 of additional construction-loan commitments available upon satisfaction of conditions.
- Management said current cash should fund operations for the next 12 months, while working-capital needs are expected to increase as the company pursues growth. No specific earnings or revenue guidance was provided.
- Some loans were extended beyond original maturities because borrowers faced difficulty obtaining traditional financing. Management says collateral is reevaluated before extensions; it cautions that future loans could default or become uncollectible. Subsequent to June 30, $800,000 of loans were repaid.
- A shareholder derivative lawsuit concerning the CEO’s restricted-stock grant was settled and dismissed in April 2013. The $80,000 fee award was paid by the company’s insurance policy, not by the company. The filing also reports a $0.01-per-share dividend payment and $76,053 of treasury-stock purchases during the first half.
- Management identified risks including the company’s limited operating history in its newer business, integration of potential acquisitions, quarterly result fluctuations, and growth challenges. Disclosure controls were deemed effective; no material change in internal control was reported.
Important facts for investors to verify
- Repayment or refinancing of the $500,000 senior notes due December 2013 and continued availability and terms of the Sterling line.
- Loan portfolio credit quality, collateral values, extensions, borrower-group concentration, and the status of the $2.47 million construction commitments.
- Whether operating cash generation and liquidity can support portfolio growth and the expected increase in working-capital needs.
- Share count: the filing reports 4,267,190 common shares outstanding as of July 31, 2013; the June 30 balance sheet reports 4,270,190 outstanding.