Manhattan Bridge Capital, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. The company provides short-term, real-estate-secured “hard money” loans to investors in the New York metropolitan area. Financial statements are unaudited and consolidated. Unless noted otherwise, amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Revenue | $608,910 | $534,361 | +14% |
| Operating income | $316,382 | $258,252 | +23% |
| Net income | $208,269 | $173,139 | +20% |
| Basic and diluted EPS | $0.05 | $0.04 | Increased |
| Net cash used in operations | $29,030 | $21,412 | Use increased |
| Net cash used in investing | $881,000 | Net cash provided: $1,090,366 | Shift to use |
| Net cash used in financing | $110,062 | $1,073,134 | Use decreased |
Interest income was $507,371 and origination fee revenue was $101,539. Operating costs and expenses were $292,528, including $116,423 of interest and debt-service costs and $175,996 of general and administrative expense. The implied operating margin was approximately 52% of revenue, versus 48% in Q1 2013; net margin was approximately 34%, versus 32%.
Balance sheet, debt and liquidity
- At March 31, 2014, total assets were $16.04 million, including $12.52 million of short-term loans receivable, $3.06 million of long-term loans receivable and only $931 of cash and cash equivalents.
- Current liabilities were $6.97 million; working capital was approximately $5.77 million. All reported liabilities were current.
- Debt included $5.30 million outstanding on a Sterling National Bank line of credit and $1.32 million in short-term loans. The credit line had a $7 million limit, a stated rate of 2% above prime subject to a 6% floor, and was extended through July 1, 2014. The CEO personally guaranteed it.
- Stockholders’ equity was $9.06 million, compared with $8.89 million at December 31, 2013.
- Cash fell from $1.02 million at year-end to $931, primarily reflecting increased lending. The company paid a dividend of approximately $42,562 during the quarter.
Loan portfolio and material developments
- Total loans receivable were $15.58 million at quarter-end, compared with $12.53 million at March 31, 2013. The portfolio consisted of $12.52 million short-term and $3.06 million long-term loans.
- The company originated $4.77 million of loans and reported collections of $3.89 million in the cash-flow statement. Management described lending growth as the main driver of higher revenue.
- Management reported no defaults, non-collectable loans or loan impairments, and said borrowers on loans extended beyond their original maturities were paying interest. Some loans had original due dates from 2009 through 2013.
- At quarter-end, the company had committed an additional $1.04 million in construction loans, drawable when specified conditions are met. Two jointly funded loans totaled $1.63 million, of which $1.13 million was the company’s portion.
- Loans to two groups of borrower entities totaled $3.34 million, or 21.5% of the portfolio. The filing states these borrowers had no relationship to company officers or directors. No single entity represented more than 10% of outstanding loans.
- Subsequent to quarter-end, $520,000 of loans originally due in 2013 was repaid. The company also signed a contract to sell a Bronx property for $410,000; completion depends on addressing the former option holder’s continuing month-to-month option arrangements.
Outlook, risks and other matters
- Management expected cash balances, the Sterling credit line and operating cash flows to be sufficient for the next 12 months, while anticipating higher working-capital needs as lending grows.
- The company was exploring REIT status but said it did not then meet all requirements, including an ownership-concentration limitation; there was no assurance it would qualify in 2014 or later.
- Management cited risks including loan collectability, quarterly result fluctuations, challenges to growth, the limited operating history of its new business strategy, and successful integration of any acquired businesses. Loans are generally secured by real estate and often supported by personal guarantees; most provide interest-only payments with a balloon at maturity.
- Management concluded disclosure controls were effective as of March 31, 2014 and reported no material change in internal control over financial reporting during the quarter. No formal earnings guidance was provided.
Important facts for investors to verify
- Liquidity and funding: Verify access to the bank line and the company’s ability to fund commitments and growth given quarter-end cash of $931 and the line’s July 1, 2014 extension date.
- Credit quality and concentration: Review extensions, collateral values, borrower repayment capacity, and the 21.5% portfolio exposure to the two disclosed borrower groups; reported absence of impairments does not eliminate future loss risk.
- Cash-flow figures: The cash-flow statement reports loan collections of $3.893 million, while MD&A describes $3.983 million for Q1 2014. The filing text does not reconcile this difference.
- Share count: The balance sheet reports 4,256,190 common shares outstanding, while the cover page reports 4,270,190 shares outstanding as of May 1, 2014; verify the relevant dates and reconciliation.
- Property sale and REIT plans: Confirm whether the property sale closed and whether the company can satisfy REIT qualification requirements.