Manhattan Bridge Capital, Inc. — Q3 2011 Form 10-Q
Reporting period: Three and nine months ended September 30, 2011; interim financial statements are unaudited. The company makes short-term, real-estate-secured commercial loans to property investors, principally in the New York metropolitan area.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $351,041 | $306,462 | $1,031,451 | $912,665 |
| Operating income | $106,472 | $116,707 | $351,389 | $383,656 |
| Net income | $97,062 | $56,854 | $264,979 | $352,387 |
| Basic/diluted EPS | $0.03 / $0.03 | $0.02 / $0.02 | $0.08 / $0.08 | $0.11 / $0.10 |
Revenue rose 14.6% in Q3 and 13.0% for the nine-month period, reflecting higher lending activity. Q3 net income increased 70.7%; nine-month net income fell 24.8%. The nine-month comparison includes a $151,419 realized gain on previously written-down marketable securities in 2010, while 2011 recorded $70,590 of other income, primarily real-estate option fees. Operating income declined in both comparisons as expenses grew faster than revenue. Approximate operating margins were 30.3% in Q3 2011 and 37.2% for the first nine months of 2011; approximate net margins were 27.7% and 25.7%, respectively.
- Revenue mix: Q3 loan interest income was $283,821 and origination fees were $67,220; nine-month amounts were $842,222 and $189,229.
- Costs and taxes: Nine-month interest expense increased to $84,446 from $21,627; general and administrative expense rose 17.4% to $595,616. Nine-month income tax expense declined to $157,000 from $187,030.
- Cash flow: Nine-month operating cash flow was $303,976, versus $110,184. Investing used $586,339, principally reflecting loan issuance net of collections and real-estate investment; financing provided $1,159,465, mainly from short-term borrowing. Cash increased to $1,263,125 from $386,023 at year-end 2010.
- Balance sheet and liquidity: Total assets were $10,289,697; working capital was approximately $5.918 million, down from $8.034 million at December 31, 2010. Management attributed the working-capital decline primarily to reclassifying loans as long term.
- Debt: Current short-term loans and line of credit totaled $1,459,465; senior secured notes were $500,000, for total reported borrowing of approximately $1.959 million. The notes bear 6.63% interest and mature in December 2013; the $300,000 bank line bears 9% and is due in October 2012.
Material changes, outlook, and risks
- The loan portfolio totaled approximately $8.448 million: $6.274 million classified as short term and $2.174 million as long term. The company had committed an additional $1.495 million for construction loans, subject to conditions.
- Management reported that borrowers were paying interest and that no loan impairments or impairment provisions existed at September 30. However, some loans were extended beyond original maturities amid weakness in the regional real-estate market and borrowers’ difficulty obtaining permanent financing. Loans totaling $524,700 short term and $1,750,200 long term were originally due in 2009 or 2010. The filing states that the company had not experienced defaults to date, but gives no assurance against future defaults or collection losses.
- Management expected existing cash to fund operations for the next 12 months, while anticipating higher working-capital needs as it pursued growth. Loan rates were generally stated at 12%–16%, sometimes higher on an effective basis after fees.
- The company purchased three Bronx properties for $675,000 and sold the seller a buy-back option. One property was bought back in September for $380,679; after quarter-end, another was bought back for $147,500. As of October 31, the option holder retained an option on the final property.
- On September 9, the company granted CEO Assaf Ran 1,000,000 restricted shares. Transfer restrictions generally extend in thirds to 2026, 2027, and 2028, subject to specified employment-termination provisions. The CEO forfeited options for 280,000 shares and agreed not to exercise another 210,000 options, with restricted-share forfeitures tied to exercises of those remaining options. The grant and related share-count impact are important dilution and compensation items to review.
- Forward-looking risks identified include execution and integration of new businesses, success of new operations and strategy, limited operating history in the new business, quarterly results fluctuations, and growth challenges. Management reported disclosure controls were effective and no material change in internal control occurred during the quarter.
Important facts for investors to verify
- Loan-level collateral values, borrower concentrations, extension terms, and collectability—particularly for loans originally due in 2009 or 2010.
- Funding and availability for the $1.495 million of conditional construction-loan commitments, and the effect of additional borrowing on interest costs and liquidity.
- The restricted-stock grant’s accounting, vesting and forfeiture terms, and its effect on diluted shares and future compensation expense.
- Real-estate option fee income, post-quarter property buybacks, and the remaining option’s terms and exercise prospects.
- Whether the reported cash balance and management’s 12-month liquidity expectation remain adequate as lending and working-capital needs grow.