Manhattan Bridge Capital, Inc. — 2013 Form 10-K
Business and reporting period. The company provides short-term, secured, non-bank loans to real estate investors, principally for property acquisition and construction in the New York metropolitan area. This annual report covers the fiscal year ended December 31, 2013, compared with 2012. Loans are generally one-year, interest-only loans with balloon principal payments, secured primarily by real estate and usually supported by personal guarantees.
Financial performance and position
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $2.260 million | $1.816 million |
| Operating income | $977,419 | $664,382 |
| Income before tax | $969,967 | $691,930 |
| Income tax expense | $387,000 | $303,320 |
| Net income | $582,967 | $388,610 |
| Basic and diluted EPS | $0.14 | $0.09 |
| Operating cash flow | $785,757 | $533,399 |
| Cash and cash equivalents at year-end | $1.021 million | $240,693 |
- Revenue increased 24.4%, including loan interest income of $1.858 million and origination fees of $401,514. Operating income rose about 47%; net income rose about 50%. Operating margin was approximately 43.3% versus 36.6%, and net margin approximately 25.8% versus 21.4%.
- Interest and debt-service costs increased 57.7% to $442,661, primarily due to greater use of the Sterling credit line. General and administrative expense declined about 3% to $837,788, largely reflecting lower legal fees.
- At year-end, total assets were $16.124 million and stockholders’ equity was $8.893 million. Current assets were $11.909 million and current liabilities $7.232 million; reported working capital was approximately $4.677 million, compared with $5.582 million in 2012.
- Loans receivable totaled approximately $14.695 million: $10.698 million short-term and $3.997 million long-term. The long-term balance increased from $2.602 million in 2012. The company reported no loan impairment allowance and no historical defaults or uncollectible loans; these statements do not assure future performance.
- Debt included a $5.350 million Sterling line-of-credit balance and $1.319 million in short-term loans. The $500,000 senior secured notes were repaid in full in December 2013. The line’s commitment increased from $3.5 million to $5 million and then $7 million during 2013; it carries interest at 2% above prime, subject to a 6% floor, and is personally guaranteed by the CEO up to $7 million.
- Investing cash use was $1.071 million, down from $4.210 million, as loan collections increased to $14.089 million while new lending was $15.159 million. Financing cash provided was $1.065 million. Cash increased by $780,330 during the year.
Material changes and other items
- The loan portfolio grew, with loan originations broadly level year over year and collections increasing. At December 31, 2013, the company had a further $1.018 million construction-loan commitment available for drawdown if conditions were met.
- Several loans remained outstanding past their original maturities, including loans originally due from 2009 through 2013. The filing says borrowers were paying interest and collateral was reevaluated before extensions; $2.452 million of year-end loans were subsequently paid off, and other loans had aggregate paydowns of $350,000.
- The company recorded a $35,000 write-down of its investment in a privately held company following delays in that company’s business plan; the investment was carried at $65,000 at year-end.
- During 2013, the company paid dividends totaling $0.04 per share and repurchased 96,269 shares under a buyback program that expired September 30, 2013. In February 2014, it approved four quarterly dividends of $0.02 per share for payment dates from May 2014 through February 2015.
- A derivative lawsuit was settled and dismissed in April 2013. The court awarded $80,000 in plaintiff’s fees and costs, paid by the company’s directors’ and officers’ insurance policy, not the company.
- On March 10, 2014, the company contracted to sell its remaining Bronx property for $410,000. The property remained subject to a month-to-month buyback-option fee arrangement; the filing states the option would need to be addressed before closing.
Outlook, risks and controls
- Management expected cash, operating cash flow and the Sterling credit line to fund operations for the next 12 months, while anticipating higher working-capital needs as the business grows. This is management’s expectation, not a guarantee.
- Management’s growth strategy is to expand lending and seek increased bank loans and credit lines. The company was also exploring REIT status but said it did not then meet all requirements and could not assure it would qualify.
- Key risks include concentrated exposure to New York-area real estate and borrowers; collateral-value declines, construction and balloon-payment risks; loan extensions and refinancing availability; competition and pressure on rates and fees; interest-rate and funding risks; and dependence on CEO Assaf Ran. The company had two employees at year-end.
- Borrower concentration warrants attention: loans to borrower groups associated with two individuals totaled $3.751 million, or 25.5% of the loan portfolio. No single entity exceeded 10% of the portfolio. The company also reported a $1.018 million unfunded construction-loan commitment.
- The company disclosed related-party financing: the CEO made loans that were repaid during 2013, and a $160,000 loan from a director’s parent remained outstanding, bearing 10% interest and due in September 2014.
- The independent auditor gave an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor was not engaged to express an opinion on internal-control effectiveness.
Most important facts for investors to verify
- Loan portfolio quality, maturity extensions, collateral values, subsequent repayments and any emerging delinquencies or losses.
- Availability and terms of the $7 million Sterling facility, covenant compliance, borrowing costs and the CEO’s personal guarantee.
- Borrower-group concentration, construction commitments and the company’s ability to fund growth while maintaining liquidity.
- Closing and proceeds from the contracted $410,000 property sale, including resolution of the continuing option arrangement.
- Whether the 2014 dividend payments were made and whether future distributions remain supported by earnings, liquidity and capital needs.
- Any progress toward REIT qualification, and the potential effects of competition, interest rates and regional real-estate conditions.