Manhattan Bridge Capital, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. The company provides short-term, real-estate-secured commercial loans to property investors, primarily in the New York metropolitan area. Financial statements are unaudited; amounts below are in dollars unless stated otherwise.
Financial results and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $341,609 in 2011; $315,029 in 2010 | $680,411 in 2011; $606,203 in 2010 |
| Income from operations | $109,511; prior year $122,985 | $244,917; prior year $266,947 |
| Net income | $87,101; prior year $154,941 | $167,917; prior year $295,533 |
| Basic and diluted EPS | $0.03; prior year $0.05 | $0.05; prior year $0.09 |
| Operating cash flow | Not separately presented for the quarter | $195,895; prior year $69,181 |
For Q2, reported revenue increased 8.6% year over year, while net income declined. For the first six months, revenue increased 12.2%, but net income fell. The company attributed revenue growth to increased lending. Higher interest expense and general and administrative costs weighed on operating income; lower other income also reduced pretax income. The 2010 comparison included a realized gain on previously marked-down securities ($96,132 for Q2 and $151,419 for the six-month period); 2011 had no such gain.
At June 30, total assets were $10.18 million, including $9.04 million of short-term loans, $73,391 of long-term loan receivables, and a $675,000 real-estate investment. Cash was only $8,446, versus $386,023 at year-end 2010. Working capital was approximately $7.50 million, down from $8.03 million. Total liabilities were $2.21 million, including $1.36 million of short-term loans and line of credit and $500,000 of senior secured notes. The filing reports no loan impairment provision and says all loans were performing at quarter-end.
Six-month investing cash outflow was $1.63 million, mainly reflecting net loan originations and the real-estate purchase. Financing provided $1.06 million, principally from borrowings. Interest paid was $44,965. No gross-margin figure is presented; the filing does not provide a clear comparable margin measure.
Material changes, outlook, and risks
- Short-term loans grew to $9.04 million on the balance sheet. During the six months, the company advanced $3.27 million and collected $2.31 million. It reported $9.11 million of total outstanding loans by its credit-risk table and had a further $2.12 million of construction-loan commitments subject to borrower conditions.
- The company purchased three Bronx two-family buildings for $675,000 and granted the seller a one-year buyback option for $3,900 plus $10,530 per month. Management believed the option holder would exercise within nine months. The company recorded $39,000 of related other income in the first half.
- Management expects current cash balances to fund operations for the next 12 months, while anticipating higher working-capital needs as it pursues growth. Cash was very low at quarter-end, and liquidity depends substantially on loan collections, borrowings, and the conversion of loan assets to cash.
- Some loans had been extended beyond their original maturities amid weakness in the real-estate market and borrowers’ difficulty obtaining permanent financing. The company said it reevaluates collateral before extensions, borrowers were paying interest, and no defaults or uncollectible loans had occurred to date. It also disclosed that $1.32 million of extended loans outstanding at June 30 were partially or fully paid off afterward.
- Borrowing costs increased: interest expense was $44,965 for the first half, versus $14,727 a year earlier. The $300,000 bank line was fully drawn; additional short-term loans carried rates of 8%–14%. The $500,000 senior notes bear 6.63% interest, are secured, and mature in December 2013. Certain borrowings are secured by loan assets; some are also personally guaranteed by the CEO.
- A board-authorized grant of 1,000,000 restricted shares to the CEO was subject to shareholder approval. In connection with it, the CEO agreed to cancel 210,000 options and restrict exercise of another 280,000 options under specified terms. The potential share issuance is material relative to 3,324,459 common shares outstanding as of August 10, 2011.
- Forward-looking risks identified include successful integration of acquisitions, the performance of 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
- Current loan collections, collateral values, extensions, borrower concentration, and performance of the $2.12 million of conditional construction commitments.
- Cash availability and the company’s ability to meet operating needs and fund growth given $8,446 of quarter-end cash and reliance on loan repayments and external financing.
- Status and terms of shareholder approval for the proposed 1,000,000 restricted-share grant, including its dilution and compensation-cost effects.
- Exercise or expiration of the real-estate buyback option and the resulting cash flows and accounting treatment.
- Repayment and maturity terms, collateral, guarantees, and refinancing needs for short-term borrowings, the bank line, and the senior secured notes.