Manhattan Bridge Capital, Inc. — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012. The company makes short-term, real-estate-secured loans to real estate investors in the New York metropolitan area. Financial statements are unaudited.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $491,310 | $351,041 | $1,297,697 | $1,031,451 |
| Operating costs and expenses | $271,597 | $244,569 | $739,511 | $680,062 |
| Income from operations | $219,713 | $106,472 | $558,186 | $351,389 |
| Net income | $161,600 | $97,062 | $356,647 | $264,979 |
| Basic and diluted EPS | $0.04 | $0.03 | $0.08 | $0.08 |
- Q3 revenue increased 39.9% year over year; nine-month revenue rose 25.9%. Growth reflected increased lending activity. Interest income and origination fees were the revenue sources.
- Net income rose about 66.5% in Q3 and 34.6% for the nine-month period. Higher loan interest and fee revenue more than offset increased financing costs. Nine-month EPS was unchanged despite higher net income, with weighted-average shares increasing to 4.32 million from 3.40 million.
- Interest and amortization of debt costs increased to $86,779 in Q3 from $48,580, and to $186,851 for nine months from $111,742, primarily due to borrowing to expand lending.
Financial position, cash flow and debt
- At September 30, 2012, total assets were $13.40 million, including $12.69 million of short- and long-term loans receivable. Total assets were $10.09 million at December 31, 2011.
- Cash was $208,360, versus $221,905 at year-end 2011. Working capital was approximately $5.57 million, compared with $5.76 million. Management attributed the working-capital decrease primarily to reclassification of some loans from short-term to long-term.
- Current liabilities were $4.44 million, including $4.11 million of line-of-credit and short-term borrowings. Total liabilities were $4.94 million, including $500,000 of senior secured notes due December 2013. Shareholders’ equity was $8.46 million.
- The Sterling National Bank revolving credit line, entered into in May 2012, provides up to $3.5 million; $3.15 million was outstanding at quarter-end. Its rate is 2% above prime, with a 6% minimum, and it is secured by assigned mortgages and other collateral and guaranteed personally by the CEO. Other short-term borrowings had $959,465 outstanding and carried rates of 8%–14%.
- Nine-month operating cash flow was $312,871, compared with $303,976. Investing cash outflow was $3.27 million, primarily reflecting $11.15 million of loan originations less $7.87 million of collections. Financing cash inflow was $2.95 million. Cash declined by $13,545 during the period.
- The company reported no off-balance-sheet arrangements. It had $2.367 million of additional construction-loan commitments available for borrower drawdown upon satisfaction of conditions.
Material changes, outlook and risks
- Loan balances grew as lending activity expanded. Management reported that all loans were performing and no loan impairments or impairment provisions existed at September 30. However, some loans had been extended beyond original maturities; three loans originally due in 2009, 2010 and 2011 were still outstanding, with borrowers paying interest.
- Management expects existing cash to fund operations for the next 12 months, while anticipating higher working-capital requirements as it pursues growth. The filing gives no specific earnings or revenue guidance.
- Borrowers and prospective property buyers may have difficulty obtaining permanent financing, and loan extensions may be required. Management says it reevaluates collateral before granting extensions, but cautions that future loans could default or become uncollectible.
- A shareholder derivative action challenges the CEO’s restricted-stock award. The court dismissed the initial complaint with leave to amend; a motion to dismiss the amended complaint was pending. The company must satisfy a $75,000 insurance retention for defense costs. The filing does not quantify a probable loss.
- Other income declined to $6,887 in Q3 and $20,661 for nine months, from $31,590 and $70,590, respectively, reflecting lower fees from property buy-back options. The remaining property option was extended for six months from October 1, 2012.
- In September, the company repurchased 2,500 shares for approximately $2,600 under a program authorizing repurchases of up to 100,000 shares. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
- Forward-looking risks include integration of any acquired businesses, the success of new operations and strategy, limited operating history in the new business, quarterly fluctuations and growth challenges.
Important facts for investors to verify
- Loan portfolio performance, collateral values, borrower concentration, and the status and collectability of extended or overdue loans.
- Availability and conditions of the $2.367 million construction-loan commitments and the collateral capacity and covenants of the Sterling credit line.
- Borrowing rates, repayment requirements and refinancing or repayment plans for the credit line, short-term loans and the $500,000 notes due in December 2013.
- Progress and potential cost of the derivative litigation, including the company’s insurance retention.
- Whether growth in loan originations and interest income can continue to exceed financing and operating costs while maintaining liquidity.