Manhattan Bridge Capital, Inc. — Q1 2012 Form 10-Q
Business and period: The company makes short-term, real-estate-secured loans to investors in the New York metropolitan area. This unaudited filing covers the three months ended March 31, 2012; comparisons are with the same quarter of 2011 unless otherwise noted.
Financial results and position
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Revenue | $391,826 | $338,801; up 15.6% |
| Interest income / origination fees | $307,602 / $84,224 | $282,365 / $56,436 |
| Operating expenses | $211,246 | $203,393 |
| Operating income | $180,580; 46.1% of revenue | $135,408; 40.0% of revenue |
| Net income | $114,967 | $80,818; up 42.3% |
| Basic and diluted EPS | $0.03 | $0.02 |
| Operating cash flow | $70,947 | $35,169 |
| Investing / financing cash flow | $(516,219) / $265,000 | $(792,129) / $603,845 |
At March 31, cash was $41,633, down from $221,905 at year-end. Working capital was approximately $5.833 million, compared with $5.763 million at December 31, 2011. Total assets were $10.455 million, including $7.374 million of short-term loans and $2.557 million of long-term loans. Total liabilities were $2.249 million: $1.159 million of short-term loans, $265,000 of related-party short-term loans, and $500,000 of senior secured notes. No loan impairment provision was recorded.
Changes, outlook, and risks
- Revenue and operating income grew, primarily reflecting increased lending activity. Interest and debt-service costs rose to $41,141 from $25,775, mainly because the company borrowed to fund lending. General and administrative expenses fell 5%, to $167,976.
- Net investing cash outflow primarily reflected $2.777 million of new short-term loans, partly offset by $2.260 million of collections. The company attributed the cash decline chiefly to increased lending.
- Management expected existing cash to fund operations for the next 12 months, while anticipating higher working-capital needs as the business grows. The filing provides no quantified earnings or revenue guidance.
- At quarter-end, the company had $2.210 million of additional construction-loan commitments available for borrower drawdown when conditions are met. Loan terms are generally one year, but some loans have been extended; three loans originally due in 2009, 2010, and 2011 remained outstanding and borrowers were paying interest. Management said no defaults or uncollectible loans had occurred to date, but gave no assurance about future collections.
- Credit concentration is notable: loans to groups of entities associated with three separate individuals totaled $4.592 million, or 62.3% of the short-term loan portfolio. One entity represented 11% of total loans outstanding. Loans are principally backed by real estate and generally personal guarantees.
- After quarter-end, the company established a secured revolving line with Sterling National Bank for up to $3.5 million, at prime plus 2%, subject to a 6% minimum, secured by certain commercial loans and guaranteed by the CEO. It used proceeds to repay the CEO’s quarter-end loans and said it intended to repay other higher-rate short-term borrowings.
- A stockholder derivative suit challenges the CEO’s 2011 award of one million restricted shares in connection with surrender of certain option rights. The company moved to dismiss; oral argument occurred April 19, 2012, and the court’s ruling was pending. The company has a $75,000 self-insured retention for directors’ and officers’ liability coverage.
- Forward-looking risks include integrating acquisitions, developing new operations and strategy, limited operating history in the new business, quarterly fluctuations, and growth challenges. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Loan portfolio performance, extensions, collateral values, borrower concentration, and the status and funding conditions of the $2.210 million commitments.
- Terms, borrowing availability, collateral requirements, and subsequent use of the $3.5 million bank line, including repayment of other short-term loans.
- Cash needs and funding capacity given the low quarter-end cash balance and management’s expected increase in working-capital requirements.
- Developments in the derivative litigation and any related costs or outcomes.