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LOAN > SEC Filings for LOAN > Form 10-K on 22-Mar-2013All Recent SEC Filings

Show all filings for MANHATTAN BRIDGE CAPITAL, INC | Request a Trial to NEW EDGAR Online Pro

Form 10-K for MANHATTAN BRIDGE CAPITAL, INC


22-Mar-2013

Annual Report


Item 7. Management's Discussion andAnalysis of Financial Condition and Results of Operations

The following management's discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto contained elsewhere in this report. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements.

Overview

The Company offers short-term, secured, non-banking loans to real estate investors (also known as hard money) to fund their acquisition and construction of properties located in the New York Metropolitan area. The loans are principally secured by collateral consisting of real estate and, generally, accompanied by personal guarantees from the principals of the businesses. The loans are generally for a term of one year. Most of the loans provide for receipt of interest only during the term of the loan and a balloon payment at the end of the term. For the years ended December 31, 2012 and 2011 the total amounts of $15,173,500and $8,512,537, respectively, have been lent, offset by collections received from borrowers, under the commercial loans in the amount of 10,963,486 and $7,254,478, respectively. Loans ranging in size from $30,000 to $1,000,000 were concluded at stated interest rates of 12% to 15%, but often at higher effective rates based upon points or other up-front fees.

The Company uses its own employees, outside lawyers and other independent professionals to verify titles and ownership, to file liens and to consummate the transactions. Outside appraisers are used to assist the Company's officials in evaluating the worth of collateral, when deemed necessary by management. The Company also uses independent construction inspectors as well as mortgage brokers and deal initiators.

The Company generally grants loans for a term of one year. In certain situations the Company and its borrowers have mutually agreed to the extension of the loans as a result of the downturn in the economy and the real estate industry in the New York metropolitan area. Potential buyers of the real estate serving as collateral for the short-term loans may have difficulty securing financing due to restrictions imposed by financial institutions resulting from the recent mortgage crisis. In addition, the Company's borrowers may be having difficulty securing permanent financing. Prior to the Company granting an extension of any loan, it reevaluates the underlying collateral.

At December 31, 2012, the Company's commercial loans include loans in the amount of $499,666, $567,200, $750,000 and $1,537,500, originally due in 2009, 2010, 2011 and 2012, respectively. In all instances the borrowers are currently paying their interest and, generally, the Company receives a fee in connection with the extension of the loans. Accordingly, at December 31, 2012 and 2011, no loan impairments exist and there are no provisions for impairments of loans or recoveries thereof included in operations for the years then ended.

To date, the Company has not experienced any defaults and none of the loans previously made have been non-collectable, although no assurances can be given that existing or future loans may not go into default or prove to be non-collectible in the future.

At December 31, 2012, the Company was committed to an additional $2,009,500 in construction loans that can be drawn by the borrower when certain conditions are met.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management will base the use of estimates on (a) a preset number of assumptions that consider past experience, (b) future projections, and (c) general financial market conditions. Actual amounts could differ from those estimates.

The Company recognizes revenues in accordance with ASC 605, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery of the product has occurred or services have been rendered, (iii) the sales price charged is fixed or determinable, and (iv) collectability is reasonably assured.

Interest income from commercial loans is recognized, as earned, over the loan period.

Origination fee revenue on commercial loans is amortized over the term of the respective note.

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of long lived assets, including intangible assets and goodwill, may not be recoverable. When such events or changes in circumstances occur, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the undiscounted cash flows is less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets.

There are also areas in which in management's judgment in selecting any available alternative would not produce a materially different result. See our audited consolidated financial statements and Notes thereto which begin on page F-1 of this Annual Report on Form 10-K, which contain accounting policies and other disclosures required by generally accepted accounting principles in the United States of America.

Results of operations

Years ended December 31, 2012 and 2011

Total revenue

Total revenue for the year ended December 31, 2012 was $1,816,000 compared to $1,400,000 for the year ended December 31, 2011, an increase of $416,000 or 29.7%. The increase in revenue represents an increase in lending operations. In 2012, $1,476,000 of the Company's revenue represents interest income on secured, commercial loans that the Company offers to small businesses compared to $1,142,000 in 2011, and $340,000 represents origination fees on such loans compared to $259,000 in 2011. The loans are principally secured by collateral consisting of real estate and, generally, accompanied by personal guarantees from the principals of the businesses.

Interest and amortization of debt service costs

Interest and amortization of debt service costs for the year ended December 31, 2012 were $281,000 compared to $157,000 for the year ended December 31, 2011, an increase of $124,000. The increase in interest and amortization of debt service costs is primarily attributable to the Company's receipt of short term loans and a line of credit in order to increase its ability to make loans. (See Notes 7 and 8 to the financial statements included elsewhere in this report.)

Referral fees

Referral fees for the year ended December 31, 2012 were $6,000 compared to $8,000 for the year ended December 31, 2011. The referral fees represent fees paid on such loans which amortize over the life of the loan.

General and administrative expenses

General and administrative expenses for the year ended December 31, 2012 were $864,000 compared to $867,000 for the year ended December 31, 2011, a decrease of $3,000. This decrease is primarily attributable to decreases in office rent, in NASDAQ listing fee and in stock based compensation expense (See Note 12 to the financial statements included elsewhere in this report), offset by increases in travel expenses for meeting with prospective investors, partners and customers, and in legal expenses resulting from the derivative action (See Note 14 to the financial statements included elsewhere in this report).

Other income

Other income for the years ended December 31, 2012 and 2011 was approximately $28,000 and $79,000, respectively, which represents the fees generated from the buyback options the Company sold to the seller of three 2-family buildings it purchased in March 2011 (See Note 5 to the financial statements included elsewhere in this report). The decrease in the other income in 2012 was due to the reduction of the monthly option fees in 2012 compared to 2011 as a result of the partial exercise of the buyback options by the seller in 2011 to repurchase two of the properties.

Income before income tax expense

Income before provision for income tax for the year ended December 31, 2012 was $692,000 compared to $448,000 for the year ended December 31, 2011, an increase of $244,000 or 54.5%. This increase is primarily attributable to the increase in revenue, offset by the increase in interest and amortization of debt service costs.

Income tax expense

Income tax expense, including interest and penalties, for the years ended December 31, 2012 and 2011 was approximately $303,000 and $192,000, respectively.

Liquidity and Capital Resources

At December 31, 2012, we had cash and cash equivalents of $241,000 and working capital of $5,582,000 compared to cash and cash equivalents of $222,000 and working capital of $5,763,000 at December 31, 2011. The increase in cash and cash equivalents primarily reflects the proceeds from the Company's receipt of short term loans and the use of a line of credit (See Note 7 to the financial statements included elsewhere in this report), offset by an increase in lending operations. The decrease in working capital is primarily attributable to the reclassification of senior secured notes from long term liabilities to current liabilities (See Note 8 to the financial statements included elsewhere in this report).

For the years ended December 31, 2012 and 2011, net cash provided by operating activities was approximately $533,000 and $381,000, respectively. The increase in net cash provided by operating activities primarily results from increases in net income and in income taxes payable, offset by decreases in non cash compensation expense and in deferred revenues, and an increase in interest receivable on loans.

For the year ended December 31, 2012 net cash used in investing activities was approximately $4,210,000, compared to approximately $1,405,000 for the year ended December 31, 2011. Net cash used in investing activities for the year ended December 31, 2012, consisted primarily of the issuance of our short term commercial loans in the amount of approximately $15,174,000, offset by collection of these loans in the amount of approximately $10,963,000. Net cash used in investing activities for the year ended December 31, 2011, consisted primarily of the issuance of our short term commercial loans in the amount of approximately $8,513,000, offset by collection of these loans in the amount of approximately $7,254,000, and the investment in real estate in the amount of approximately $675,000, which was offset by the proceeds of approximately $528,000upon the partial exercises of options by the option holder.

For the year ended December 31, 2012 net cash provided by financing activities was approximately $3,695,000, compared to approximately $859,000 for the year ended December 31, 2011. Net cash provided by financing activities for the year ended December 31, 2012 reflects the Company's receipt of the proceeds of short term loans and the use of a line of credit in the aggregate amount of $3,740,000, offset by purchase of treasury stock in the amount of approximately $29,000 and by the deferred financing costs on Sterling credit line in the amount of approximately $16,000. Net cash provided by financing activities for the year ended December 31, 2011 reflects the Company's receipt of the proceeds of short term loans.

Until our initial public offering in 1999, our only source of funds was cash flow from operations, which funded both our working capital needs and capital expenditures. As a result of our initial public offering in May 1999, we received proceeds of approximately $6.4 million. Our credit facilities are limited. As of December 31, 2012, our funds were invested in money market funds and commercial loans.

On May 2, 2012, we entered into a 1-year revolving Line of Credit Agreement with Sterling National Bank ("Sterling") pursuant to which the Bank has agreed to advance up to $3.5 million against assignments of mortgages and other collateral (the "Sterling Credit Line"). The Sterling Credit Line was conditioned on an unlimited personal guarantee from Assaf Ran, our president and chief executive officer, and requires the maintenance of certain non-financial covenants including limitations on the percentage of loans outstanding in excess of one year, loans made to affiliated groups and the extent of construction loans made by the Company. The interest rate on the Sterling Credit Line is 2% in excess of the Wall Street Journal prime rate, but in no event less than 6%, per annum, on the money in use.

We anticipate that our current cash balances and the Sterling Credit Line together with our cash flows from operations will be sufficient to fund the operations for the next 12 months.

Subsequent event

On January 31, 2013, the Sterling Credit Line was increased from $3.5 million to $5 million (the "Amendment"), under the same terms as the original line of credit. In connection with the Amendment, Mr. Ran agreed to increase his personal guaranty to $5 million.

Contractual Obligations



                                                  Less than 1         1-3             3-5            More than
Contractual Obligations             Total            Year            Years           Years            5 years
Debt Obligations                  $  500,000     $     500,000     $        -     $          -     $            -
Operating Lease Obligations (*)      149,100            39,300        109,800                -                  -
Total                             $  649,100     $     539,300     $  109,800     $          -     $            -

(*) Operating lease obligations include utilities payable to the landlord under the lease.

Recent Technical Accounting Pronouncements

In April 2011, FASB issued ASU "011-02, "Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring." ASU 2011-02 provides amendments to Topic 310 to clarify which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. The adoption of this guidance did not have a material impact on the Company's consolidated financials statements.

In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (Topic 220):
Presentation of Comprehensive Income". This guidance requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The option to present items of other comprehensive income in the statement of changes in equity is eliminated. This guidance also requires reclassification adjustments between net income and other comprehensive income to be shown on the face of the financial statements. The updated guidance is effective for interim or annual financial reporting periods beginning after December 15, 2011 and for interim periods within the fiscal year, with full retrospective application. The adoption of this guidance did not have a material impact on the Company's consolidated financials statements.

In December 2011, the FASB issued ASU 2011-12, "Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05." The update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. To defer only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments, ASU 2011-12 supersedes only those paragraphs that pertain to how and where reclassification adjustments are presented. The amendments are effective at the same time as ASU 2011-05. The adoption of this guidance did not have a material impact on the Company's consolidated financials statements.

In July 2012, the FASB issued ASU 2012-02, "Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment." The revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. It allows companies to perform a "qualitative" assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financials statements.

In February 2013, the FASB issued ASU 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The ASU is intended to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. This guidance adds new disclosure requirements for items reclassified out of accumulated other comprehensive income (AOCI). It does not amend any existing requirements for reporting net income or OCI in the financial statements. The standard is effective prospectively for public entities for annual and interim reporting periods beginning after December 15, 2012. Private companies may adopt the standard one year later but early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financials statements.

Management does not believe that any other recently issued, but not yet effected, accounting standards if currently adopted would have a material effect on the Company's consolidated financial statements.

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