Manhattan Bridge Capital, Inc. (LOAN, NASDAQ)
Industry: REIT - Mortgage
Annual report, fiscal year 2013


## ANNUAL
REPORT

DECEMBER 31, 2013



MANHATTAN

BRIDGE CAPITAL
60 Cutter Mill Road, Suite 205
Great Neck, NY 11021

TEL: 516-444-3400 • FAX: 516-444-3404

NASDAQ:LOAN



Dear respected shareholders,

2013 was another year to be proud of. We achieved a number of successes: revenue increased 24.4% versus the prior year and net income increased from $0.9 to the impressive $0.14 per share (net after taxes). The even better news is that our continued growth both on revenue and net earnings seems to be continuing in 2014. Due to our rapid growth the company has revived its cash dividend program, and in the beginning of 2014 the cash dividend was doubled and as we progressed towards converting the company to a REIT, we further increased it to $0.28 per share. Based on these achievements the company’s management and board of directors are taking the required steps in order to obtain REIT status. If that occurs the company will be exempt from paying federal and state taxes and will pay at least 90% of its earnings as cash dividends to shareholders. At the moment, the company is not qualified to obtain REIT status; however, if we successfully complete the steps we have initiated we expect to meet those qualifications.

One more material event that occurred during 2013 was the completion of the company’s 4th Stock buy-back program. Since management believes that our stock price is undervalued, we figured that investing in our own stock would be the best investment for the company.

On the operational side we increased our revolving line of credit from Sterling National Bank to $7 Million. This increase reflects our strong performance and the confidence Sterling Bank has in the company. The increase will support continued growth in 2014.

Furthermore, we are still maintaining a spotless portfolio as well as the highest due-diligence standard in order to continue to avoid defaulting loans. I would like to take this opportunity to inform our new shareholders that the company has never experienced a default loan.

As the real-estate market in the New York metro area continues to strengthen we believe that certain neighborhoods, especially in Brooklyn and Manhattan are entering a “bubble zone”. Therefore, we are extremely cautious and even stricter in underwriting loans in those areas. We are determined to have a safe and solid loans portfolio even in rough times, just as we did during the financial crisis in the years 2008 and 2009.

On behalf of the company and the board of directors I would like to thank you for your investment in Manhattan Bridge Capital and for your trust in its management. As a fellow shareholder I would like to assure you that I will tirelessly and relentlessly work to enhance shareholders value.

The best is yet to come,

Assaf Ran

CEO and Chairman of the Board



## Business

## General

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.

## Products and services

## Manhattan Bridge Capital, DAG Funding and MBC Funding

The Company offers short-term, secured, non–banking loans to real estate investors (also known as hard money) to fund their acquisition 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, 2013 and 2012 the total amounts of $15,159,450 and $15,173,500, respectively, have been lent, offset by collections received from borrowers, under the commercial loans in the amount of $14,088,866 and $10,963,486, 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 some cases, the Company has agreed to extend the term of the loans beyond one year. This was mainly due to the additional lending conditions generally imposed by traditional lenders and financial institutions as a result of the mortgage crisis, which has made it more difficult overall for borrowers, including the Company’s borrowers, to secure long term financing. Prior to the Company granting an extension of any loan, it reevaluates the underlying collateral.

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, 2013, the Company is committed to an additional $1,017,500 in construction loans that can be drawn by the borrower when certain conditions are met.

## Growth strategy

The immediate focus of our expansion plans is to increase the volume of our short-term, secured commercial loans to real estate investors. As we increase our market share and establish our position as a leader in our niche market, and develop a successful track record in our lending operations, we seek to increase loans and lines of credit from commercial banks which will enable us to maintain higher outstanding loan balances to our customers.

In addition, the Company is exploring the possibility of becoming a REIT, an entity which would not be subject to federal or state income taxes. The Company does not currently meet all requirements for adopting REIT status, including a limitation on ownership concentration, and no assurances can be given that it will be able to meet such requirements in 2014, or thereafter. REIT requirements must be met for the last half of any year for which such status is sought.



## Sales and marketing

The Company offers its loans primarily through the Company’s officers and independent loan brokers. Leads have been generated through a limited amount of newspaper advertising and direct mail. A principal source of new transactions has been repeat business from prior customers and their referral of new business.

## Government regulation

We are subject to laws and regulations relating to business corporations generally, such as the Occupational Safety and Health Act, Fair Employment Practices and minimum wage standards. In addition, we are subject to laws and regulations imposing various requirements and restrictions, which among other things establish maximum interest rates, finance charges and charges we can impose for credit and our right to repossess and sell collateral.

We believe that we are in compliance with all laws and regulations affecting our business and we do not have any material liabilities under these laws and regulations. In addition, compliance with all of these laws and regulations does not have a material adverse effect on our capital expenditures, earnings, or competitive position.

## Competition

As a commercial lender, we face intense competition in our business from numerous bank and non-bank providers of commercial loans. Our competitors include bank and institutional commercial lenders in the mortgage lending businesses, such as lending institutions and non-depository institutions that are able to offer the same products and services. Some of these companies are substantially larger and have more resources than we do. In addition, such larger competitors may have a larger customer base, operational efficiencies and more versatile technology platforms than we do. Competitors will continue to increase pressures on both us and other companies in our industry. Industry competitors have continuously solicited our customers with varied loan programs and interest rate strategies. Management believes the competition has put, and will continue to put pressure on our pricing.

We believe that we are able to compete effectively in our current markets. There can be no assurance, however, that our ability to market products and services successfully or to obtain adequate returns on our products and services will not be impacted by the nature of the competition that now exists or may later develop.

## Website access to Company’s reports and governance documents

The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on the Company’s website at www.manhattanbridgecapital.com as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. Copies of the Company’s annual report are also available, on the Company’s website. Charters of the Company’s Audit Committee, Compensation Committee, and Nominating Committee, along with the Company’s Code of Ethics, are available for viewing on the Company’s website.

## Intellectual property

To protect our rights to our intellectual property, we rely on a combination of federal, state and common law trademarks, service marks and trade names, copyrights and trade secret protection. We have registered some of our trademarks and service marks in the United States Patent and Trademark Office (USPTO) including the following marks relating to our current business:

## Manhattan Bridge Capital

## DAG Funding Solutions

The protective steps we have taken may be inadequate to deter misappropriation of our proprietary information. These claims, if meritorious, could require us to license other rights or subject us to damages and, even if not meritorious, could result in the expenditure of significant financial and managerial resources on our part.



## Employees and independent contractors

As of December 31, 2013, we employed two employees. In addition, during 2013 we used outside lawyers and other independent professionals to verify titles and ownership, to file liens and to consummate the transactions. Outside appraisers were used to assist the Company’s officials in evaluating the worth of collateral, when deemed necessary by management. The Company also used independent construction inspectors as well as mortgage brokers and deal initiators.

## Property

Our executive and principal operating office is located in Great Neck, New York. We use this space for all of our operations. This space is occupied under a lease that expires August 31, 2016. The current monthly rent is $3,318, including electricity. We believe this facility is adequate to meet our requirements at our current level of business activity.

## Legal proceedings

The Company was sued in 2011 as a nominal defendant in a stockholder derivative action, Alan R. Kahn v. Assaf Ran, et al., Supreme Court of the State of New York, County of Nassau, filed against the members of its Board of Directors. The plaintiff, who asserted that he was a stockholder of the Company at all pertinent times, alleged wrongdoing by the Board in a transaction in which Director and Chief Executive Officer, Assaf Ran, was granted certain shares of the Company’s restricted stock in exchange for giving up his rights in certain options that he had held at the time of the transaction. Plaintiff contended that the Company was harmed by the transaction. The Directors disagreed with the plaintiff’s position that the transaction involved any wrongful conduct or that it harmed the Company in any way. The court dismissed the original complaint, but gave plaintiff leave to file an amended complaint, which the plaintiff did. The defendants moved to dismiss the amended complaint, but before the court ruled on that motion, the parties reached an agreement to settle the action, subject to approval of the court. The terms of the settlement include the Company’s agreement to continue utilizing certain corporate governance matters that the Company had already implemented before the lawsuit was filed and would continue to implement regardless of the settlement agreement, and to pay Plaintiff’s counsel’s fees and expenses in an amount to be determined by the court, which amount shall not exceed $80,000. In addition, Assaf Ran will reiterate his commitment to extend his personal guarantee to the Company for up to $5 million. This commitment was available to the Company prior to the settlement agreement. After the court preliminarily approved the settlement, the Company provided notice of the settlement to stockholders, in order to provide them with an opportunity to object to the settlement if they choose to do so. No stockholders submitted any objections to the settlement. At a final hearing to address the fairness and reasonableness of the settlement held on April 2, 2013, the court approved the settlement, dismissed the action, and awarded plaintiff $80,000 in fees and costs. The fee award has been paid by an officers’ and directors’ liability insurance policy, rather than by the Company. As a result of the court’s ruling, the litigation has been concluded.



## Management’s Discussion and Analysis 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, 2013 and 2012 the Company lent total amounts of $15,159,450 and $15,173,500, respectively, offset by collections received from borrowers from commercial loans outstanding in the amount of $14,088,866 and $10,963,486, 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 some cases, the Company has agreed to extend the term of the loans beyond one year. This was mainly due to the additional lending conditions generally imposed by traditional lenders and financial institutions as a result of the mortgage crisis, which has made it more difficult overall for borrowers, including the Company’s borrowers, to secure long term financing. Prior to the Company granting an extension of any loan, it reevaluates the underlying collateral.

At December 31, 2013, the Company’s commercial loans include loans in the amount of $290,000, $152,000, $150,000, $150,000 and $3,307,000, originally due in 2009, 2010, 2011, 2012 and 2013, respectively. 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, 2013 and 2012, 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, 2013, the Company was committed to an additional $1,017,500 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, 2013 and 2012

## Total revenue

Total revenue for the year ended December 31, 2013 was approximately $2,260,000 compared to approximately $1,816,000 for the year ended December 31, 2012, an increase of $444,000 or 24.4%. The increase in revenue represents an increase in lending operations. In 2013, approximately $1,858,000 of the Company’s revenue represents interest income on secured, commercial loans that the Company offers to small businesses compared to approximately $1,476,000 in 2012, and approximately $402,000 represents origination fees on such loans compared to approximately $340,000 in 2012. 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, 2013 were approximately $443,000 compared to approximately $281,000 for the year ended December 31, 2012, an increase of $162,000 or 57.7%. The increase in interest and amortization of debt service costs was primarily attributable to our use of the Sterling Credit Line (described below). (See Note 7 to the financial statements included elsewhere in this report.)**

## Referral fees

Referral fees for the year ended December 31, 2013 were approximately $2,000 compared to approximately $6,000 for the year ended December 31, 2012. 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, 2013 were approximately $838,000 compared to approximately $864,000 for the year ended December 31, 2012, a decrease of $26,000 or 3%. The decrease is primarily attributable to a decrease in legal fees resulting from the settlement of the derivative action (See Note 14 to the financial statements included elsewhere in this report), offset by increases in NASDAQ fee and in travel and meal expenses for meeting with prospective investors, joint venture partners and borrowers.



## Other income

Other income for each of the years ended December 31, 2013 and 2012 was approximately $28,000, which represents the fees generated from the seller buy back options (See Note 5 to the financial statements included elsewhere in this report).

## Write-down of investment in privately held company

Write-down of investment in privately held company for the year ended December 31, 2013 was $35,000. The Company determined to write down the value of its investment due to the fact that the privately held company is experiencing delays in executing its business plan. (See Note 6 to the financial statements included elsewhere in this report).

## Income before income tax expense

Income before provision for income tax for the year ended December 31, 2013 was approximately $970,000 compared to approximately $692,000 for the year ended December 31, 2012, an increase of $278,000 or 40.2%. This increase is primarily attributable to the increase in revenue, offset by the increase in interest expense.

## Income tax expense

Income tax expense, including interest and penalties, for the years ended December 31, 2013 and 2012 was approximately $387,000 and $303,000, respectively.

## Liquidity and Capital Resources

At December 31, 2013, we had cash and cash equivalents of approximately $1,021,000 and working capital of approximately $4,677,000 compared to cash and cash equivalents of approximately $241,000 and working capital of approximately $5,582,000 at December 31, 2012. The increase in cash and cash equivalents primarily reflects the use of the Sterling Credit Line, offset by the repayment of senior secured notes (See Notes 7 and 8 to the financial statements included elsewhere in this report). The decrease in working capital is primarily attributable to the reclassification of a portion of the Company’s short-term loans to long-term loans receivable.

For the years ended December 31, 2013 and 2012, net cash provided by operating activities was approximately $786,000 and $533,000, respectively. The increase in net cash provided by operating activities primarily results from an increase in net income and a write-down of investment in privately held company, offset by a decrease in accounts payable and accrued expenses.

For the year ended December 31, 2013 net cash used in investing activities was approximately $1,071,000, compared to approximately $4,210,000 for the year ended December 31, 2012. Net cash used in investing activities for the year ended December 31, 2013, consisted primarily of the issuance of our short term commercial loans in the amount of approximately $15,159,000, offset by collection of these loans in the amount of approximately $14,089,000. 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.

For the year ended December 31, 2013 net cash provided by financing activities was approximately $1,065,000, compared to approximately $3,695,000 for the year ended December 31, 2012. Net cash provided by financing activities for the year ended December 31, 2013 reflects the use of the Sterling Credit Line of $1,850,000, the proceeds of short a term loan of $160,000 received by the Company, and the proceeds from exercise of stock options of approximately $23,000, offset by the repayments of senior secured notes of $500,000 and one of the Company’s short term loans of $240,000, the purchase of treasury shares of approximately $99,000 and the dividend payments of approximately $128,000. 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.



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.

On May 2, 2012, the Company entered into a one-year revolving Line of Credit Agreement with Sterling National Bank pursuant to which the Bank agreed to advance up to $3.5 million (the “Sterling Credit Line”) against assignments of mortgages and other collateral. The Sterling Credit Line was conditioned on an unlimited personal guarantee from Assaf Ran, the Company’s CEO, 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 (3.25% at December 31, 2013), but in no event less than 6%, per annum, on the money in use.

On January 31, 2013, the Company entered into an amendment to the Line of Credit Agreement with Sterling National Bank to increase the Sterling Credit Line from $3.5 million to $5 million, under the same terms as the original line of credit (the "Amendment"). In connection with the Amendment, Mr. Ran agreed to increase his personal guarantee to $5 million. Effective on May 1, 2013 and July 1, 2013, the term of the Sterling Credit Line was extended through July 1, 2013 and July 1, 2014, respectively. On December 13, 2013, the Company entered into another amendment to the Line of Credit Agreement with Sterling National Bank to increase the Sterling Credit Line from $5 million to $7 million, under the same terms as the original line of credit (the "Second Amendment"). In connection with the Second Amendment, Mr. Ran agreed to increase his personal guarantee to $7 million. At December 31, 2013, the outstanding balance of the Sterling Credit Line is $5,350,000. At December 31, 2012, the outstanding amount under the line of credit was $3,500,000.

We have not entered into any off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons that are likely to affect liquidity or the availability of our requirements for capital resources.

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. However, we expect our working capital requirements to increase over the next 12 months as we continue to strive for growth.

## Contractual Obligations

<table><tr><td></td><td>Total</td><td>Less than 1 Year</td><td>1-3 Years</td><td>3-5 Years</td><td>More than 5 years</td></tr><tr><td>Operating Lease Obligations (*)</td><td>109,800</td><td>40,300</td><td>69,500</td><td>---</td><td>---</td></tr></table>

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

## Recent Technical Accounting Pronouncements

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 was permitted. The adoption of this guidance did not 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 did not have a material impact on the Company’s consolidated financials statements.



In February 2013, the FASB issued ASU 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.” The main objective of this update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in GAAP. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” The objective of this guidance is to clarify the balance sheet presentation of an unrecognized tax benefit and to resolve the diversity in practice that had developed in the absence of any on-point GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. For public entities, ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2024. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04, “Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (A Consensus of the FASB Emerging Issues Task Force).” The purpose of the update is to define an in substance repossession or foreclosure for purposes of determining whether or not an entity should derecognize a residential real estate collateralized consumer mortgage loan if the entity has foreclosed on the real estate. The ASU is effective for public entities for fiscal years beginning after December 15, 2014, and interim periods therein. For nonpublic entities, the ASU is effective for annual periods beginning after December 15, 2014, and interim and annual periods thereafter. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial 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.

## FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are typically identified by the words “believe,” “expect,” “intend,” “estimate” and similar expressions. Those statements appear in a number of places in this report and include statements regarding our intent, belief or current expectations or those of our directors or officers with respect to, among other things, trends affecting our financial conditions and results of operations and our business and growth strategies. These forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected, expressed or implied in the forward-looking statements as a result of various factors (such factors are referred to herein as “Cautionary Statements”), including but not limited to the following: (i) the successful integration of new businesses that we may acquire; (ii) the success of new operations which we have commenced and of our new business strategy; (iii) our limited operating history in our new business; (iv) potential fluctuations in our quarterly operating results; and (v) challenges facing us relating to our growth. The accompanying information contained in this report, including the information set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, identifies important factors that could cause such differences. These forward-looking statements speak only as of the date of this report, and we caution potential investors not to place undue reliance on such statements. We undertake no obligation to update or revise any forward-looking statements. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements.



## MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2013 and 2012

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Assets</td><td></td><td></td></tr><tr><td>Current assets:</td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 1,021,023</td><td>$ 240,693</td></tr><tr><td>Short term loans receivable</td><td>10,697,950</td><td>11,022,866</td></tr><tr><td>Interest receivable on loans</td><td>171,483</td><td>160,342</td></tr><tr><td>Other current assets</td><td>18,540</td><td>18,903</td></tr><tr><td>Total current assets</td><td>11,908,996</td><td>11,442,804</td></tr><tr><td>Investment in real estate</td><td>146,821</td><td>146,821</td></tr><tr><td>Long term loans receivable</td><td>3,997,000</td><td>2,601,500</td></tr><tr><td>Security deposit</td><td>6,637</td><td>6,491</td></tr><tr><td>Investment in privately held company</td><td>65,000</td><td>100,000</td></tr><tr><td>Deferred financing costs</td><td>---</td><td>41,735</td></tr><tr><td>Total assets</td><td>$ 16,124,454</td><td>$ 14,339,351</td></tr><tr><td>Liabilities and Stockholders&#x27; Equity</td><td></td><td></td></tr><tr><td>Current liabilities:</td><td></td><td></td></tr><tr><td>Short term loans</td><td>$ 1,319,465</td><td>$ 1,399,465</td></tr><tr><td>Line of credit</td><td>5,350,000</td><td>3,500,000</td></tr><tr><td>Senior secured notes</td><td>---</td><td>500,000</td></tr><tr><td>Accounts payable and accrued expenses</td><td>57,066</td><td>70,403</td></tr><tr><td>Deferred origination fees</td><td>132,017</td><td>122,242</td></tr><tr><td>Income taxes payable</td><td>373,219</td><td>268,256</td></tr><tr><td>Total liabilities, all current</td><td>7,231,767</td><td>5,860,366</td></tr><tr><td>Commitments and contingencies</td><td></td><td></td></tr><tr><td>Stockholders&#x27; equity:</td><td></td><td></td></tr><tr><td>Preferred shares - $0.01 par value; 5,000,000 shares authorized; no shares issued</td><td>---</td><td>---</td></tr><tr><td>Common shares - $0.001 par value; 25,000,000 authorized;</td><td></td><td></td></tr><tr><td>4,433,190 and 4,405,190 issued; 4,256,190 and 4,298,059 outstanding</td><td>4,433</td><td>4,405</td></tr><tr><td>Additional paid-in capital</td><td>9,745,249</td><td>9,687,159</td></tr><tr><td>Treasury stock, at cost - 177,000 and 107,131 shares</td><td>(369,335)</td><td>(269,972)</td></tr><tr><td>Accumulated deficit</td><td>(487,660)</td><td>(942,607)</td></tr><tr><td>Total stockholders&#x27; equity</td><td>8,892,687</td><td>8,478,985</td></tr><tr><td>Total liabilities and stockholders&#x27; equity</td><td>$ 16,124,454</td><td>$ 14,339,351</td></tr></table>

The accompanying notes are an integral part of these consolidated financial statements.



## MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED December 31, 2013 and 2012

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Interest income from loans</td><td>$ 1,858,033</td><td>$ 1,475,800</td></tr><tr><td>Origination fees</td><td>401,514</td><td>339,767</td></tr><tr><td>Total Revenue</td><td>2,259,547</td><td>1,815,567</td></tr><tr><td>Operating costs and expenses:</td><td></td><td></td></tr><tr><td>Interest and amortization of debt service costs</td><td>442,661</td><td>280,654</td></tr><tr><td>Referral fees</td><td>1,679</td><td>6,133</td></tr><tr><td>General and administrative expenses</td><td>837,788</td><td>864,398</td></tr><tr><td>Total operating costs and expenses</td><td>1,282,128</td><td>1,151,185</td></tr><tr><td>Income from operations</td><td>977,419</td><td>664,382</td></tr><tr><td>Other income (Note 5)</td><td>27,548</td><td>27,548</td></tr><tr><td>Loss on write-down of investment in privately held company (Note 6)</td><td>(35,000)</td><td>---</td></tr><tr><td>Total other (loss) income, net</td><td>(7,452)</td><td>27,548</td></tr><tr><td>Income before income tax expense</td><td>969,967</td><td>691,930</td></tr><tr><td>Income tax expense</td><td>(387,000)</td><td>(303,320)</td></tr><tr><td>Net income</td><td>$ 582,967</td><td>$ 388,610</td></tr><tr><td>Basic and diluted net income per common share outstanding:</td><td></td><td></td></tr><tr><td>--Basic</td><td>$ 0.14</td><td>$ 0.09</td></tr><tr><td>--Diluted</td><td>$ 0.14</td><td>$ 0.09</td></tr><tr><td>Weighted average number of common shares outstanding</td><td></td><td></td></tr><tr><td>--Basic</td><td>4,269,169</td><td>4,320,050</td></tr><tr><td>--Diluted</td><td>4,289,818</td><td>4,326,329</td></tr></table>

The accompanying notes are an integral part of these consolidated financial statements



## MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED December 31, 2013 and 2012

<table><tr><td></td><td colspan="2">Common Stock</td><td>Additional Paid-in Capital</td><td colspan="2">Treasury Stock</td><td>Accumulated Deficit</td><td>Totals</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>Shares</td><td>Amount</td><td></td><td>Shares</td><td>Cost</td><td></td><td></td></tr><tr><td>Balance, January 1, 2012</td><td>4,405,190</td><td>$4,405</td><td>$9,656,280</td><td>80,731</td><td>$(241,400)</td><td>$(1,331,217)</td><td>$8,088,068</td></tr><tr><td>Non cash compensation</td><td></td><td></td><td>30,879</td><td></td><td></td><td></td><td>30,879</td></tr><tr><td>Purchase of treasury shares</td><td></td><td></td><td></td><td>26,400</td><td>(28,572)</td><td></td><td>(28,572)</td></tr><tr><td>Net income for the year ended December 31, 2012</td><td></td><td></td><td></td><td></td><td></td><td>388,610</td><td>388,610</td></tr><tr><td>Balance, December 31, 2012</td><td>4,405,190</td><td>4,405</td><td>9,687,159</td><td>107,131</td><td>(269,972)</td><td>(942,607)</td><td>8,478,985</td></tr><tr><td>Non cash compensation</td><td></td><td></td><td>35,578</td><td></td><td></td><td></td><td>35,578</td></tr><tr><td>Exercise of stock options</td><td>28,000</td><td>28</td><td>22,512</td><td></td><td></td><td></td><td>22,540</td></tr><tr><td>Purchase of treasury shares</td><td></td><td></td><td></td><td>69,869</td><td>(99,363)</td><td></td><td>(99,363)</td></tr><tr><td>Dividends paid</td><td></td><td></td><td></td><td></td><td></td><td>(128,020)</td><td>(128,020)</td></tr><tr><td>Net income for the year ended December 31, 2013</td><td></td><td></td><td></td><td></td><td></td><td>582,967</td><td>582,967</td></tr><tr><td>Balance, December 31, 2013</td><td>4,433,190</td><td>$4,433</td><td>$9,745,249</td><td>177,000</td><td>$(369,335)</td><td>$(487,660)</td><td>$8,892,687</td></tr></table>

The accompanying notes are an integral part of these consolidated financial statements.



## MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED December 31, 2013 and 2012

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Cash flows from operating activities:</td><td></td><td></td></tr><tr><td>Net income</td><td>$ 582,967</td><td>$ 388,610</td></tr><tr><td>Adjustments to reconcile net income to net cash provided by operating activities -</td><td></td><td></td></tr><tr><td>Amortization of deferred financing costs</td><td>41,735</td><td>47,078</td></tr><tr><td>Depreciation</td><td>---</td><td>588</td></tr><tr><td>Non cash compensation expense</td><td>35,578</td><td>30,879</td></tr><tr><td>Loss on write-down of investment in privately held company (Note 6)</td><td>35,000</td><td>---</td></tr><tr><td>Changes in operating assets and liabilities</td><td></td><td></td></tr><tr><td>Interest receivable on loans</td><td>(11,141)</td><td>(50,437)</td></tr><tr><td>Other current and non current assets</td><td>217</td><td>(2,582)</td></tr><tr><td>Accounts payable and accrued expenses</td><td>(13,337)</td><td>10,331</td></tr><tr><td>Deferred origination fees</td><td>9,775</td><td>9,462</td></tr><tr><td>Income taxes payable</td><td>104,963</td><td>99,470</td></tr><tr><td>Net cash provided by operating activities</td><td>785,757</td><td>533,399</td></tr><tr><td>Cash flows from investing activities:</td><td></td><td></td></tr><tr><td>Issuance of short term loans</td><td>(15,159,450)</td><td>(15,173,500)</td></tr><tr><td>Collections received from loans</td><td>14,088,866</td><td>10,963,486</td></tr><tr><td>Net cash used in investing activities</td><td>(1,070,584)</td><td>(4,210,014)</td></tr><tr><td>Cash flows from financing activities:</td><td></td><td></td></tr><tr><td>Proceeds from loans and line of credit, net</td><td>1,770,000</td><td>3,740,000</td></tr><tr><td>Purchase of treasury shares</td><td>(99,363)</td><td>(28,572)</td></tr><tr><td>Repayment of senior secured notes</td><td>(500,000)</td><td>---</td></tr><tr><td>Proceeds from exercise of stock options</td><td>22,540</td><td>---</td></tr><tr><td>Dividends paid ($0.01 per share)</td><td>(128,020)</td><td>---</td></tr><tr><td>Deferred financing costs incurred</td><td>---</td><td>(16,025)</td></tr><tr><td>Net cash provided by financing activities</td><td>1,065,157</td><td>3,695,403</td></tr><tr><td>Net increase in cash and cash equivalents</td><td>780,330</td><td>18,788</td></tr><tr><td>Cash and cash equivalents, beginning of year</td><td>240,693</td><td>221,905</td></tr><tr><td>Cash and cash equivalents, end of year</td><td>$ 1,021,023</td><td>$ 240,693</td></tr><tr><td>Supplemental Cash Flow Information:</td><td></td><td></td></tr><tr><td>Taxes paid during the year</td><td>$ 283,084</td><td>$ 203,850</td></tr><tr><td>Interest paid during the year</td><td>$ 400,925</td><td>$ 234,835</td></tr><tr><td colspan="3">The accompanying notes are an integral part of these consolidated financial statements.</td></tr></table>



# MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012

## 1. The Company

Manhattan Bridge Capital, Inc. (“MBC”) and its wholly-owned subsidiaries DAG Funding Solutions, Inc. and MBC Funding I, Inc. (collectively the “Company”), offer 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.

## 2. Significant Accounting Policies

## Principles of Consolidation

The consolidated financial statements include the accounts of Manhattan Bridge Capital, Inc., and its wholly-owned subsidiaries DAG Funding Solutions, Inc. (“DAG Funding”), MBC Funding I, Inc. (“MBC Funding”) and 1490-1496 Hicks, LLC (“Hicks LLC”). All significant intercompany balances and transactions have been eliminated in consolidation.

## 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 condition. Actual amounts could differ from those estimates.

## Cash and Cash Equivalents

For the purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

## Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and marketable securities. The Company maintains its cash and cash equivalents with one major financial institution. Accounts at the financial institution are insured by the Federal Deposit Insurance Corporation up to $250,000.

Credit risks associated with short term commercial loans the Company makes to small businesses and related interest receivable are described in Note 4 entitled Commercial Loans.

## Impairment of Long-Lived Assets

The Company continually monitors events or changes in circumstances that could indicate carrying amounts of long lived assets, 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. During the year ended December 31, 2013, the Company recognized an impairment loss on the write-down of its investment in a privately held company in the amount of $35,000 (See Note 6).



# Notes to Consolidated Financial Statements

## Income Taxes

The Company accounts for income taxes under the provisions of FASB ASC 740, “Income Taxes”. Under the provisions of FASB ASC 740, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rate is recognized in income in the period that includes the enactment date.

Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

The Company follows ASC 740 rules governing tax positions which provide guidance for recognition and measurement. This prescribes a threshold condition that a tax position must meet for any of the benefits of the uncertain tax position to be recognized in the financial statements. It also provides accounting guidance on derecognition, classification and disclosure of these uncertain tax positions.

## Revenue Recognition

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.

## Deferred Financing Costs

Costs incurred in connection with the Company’s line of credit, as discussed in Note 7, are being amortized over one year, using the straight-line method. Costs incurred in connection with the Company’s senior secured notes, as discussed in Note 8 are being amortized over the term of the notes, using the straight-line method.

## Earnings Per Share (“EPS”)

Basic and diluted earnings per share are calculated in accordance with ASC 260 “Earnings Per Share”. Under ASC 260, basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share include the potential dilution from the exercise of stock options and warrants for common shares using the treasury stock method.



The numerator in calculating both basic and diluted earnings per common share for each year is the reported net income. The denominator is based on the following weighted average number of common shares:

<table><tr><td rowspan="2"></td><td colspan="2">Years ended December 31,</td></tr><tr><td>2013</td><td>2012</td></tr><tr><td>Basic weighted average common shares outstanding</td><td>4,269,169</td><td>4,320,050</td></tr><tr><td>Incremental shares for assumed exercise of options</td><td>20,649</td><td>6,279</td></tr><tr><td>Diluted weighted average common shares outstanding</td><td>4,289,818</td><td>4,326,329</td></tr></table>

262,351 and 345,721 vested options were not included in the diluted earnings per share calculation for the years ended December 31, 2013 and 2012, respectively, either because their effect would have been anti-dilutive, or because they are being held in escrow (See Note 12).

## Stock-Based Compensation

The Company measures and recognizes compensation awards for all stock option grants made to employees and directors, based on their fair value in accordance with ASC 718 “Compensation - Stock Compensation”, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. A key provision of this statement is to measure the cost of employee services received in exchange for an award of equity instruments (including stock options) based on the grant-date fair value of the award. The cost will be recognized over the service period during which an employee is required to provide service in exchange for the award (i.e., the requisite service period or vesting period). The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC 718 and ASC 505-50, “Equity Based Payment to Non-Employees”. All transactions with non-employees, in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more appropriately measurable.

The stock based compensation expense for the years ended December 31, 2013 and 2012 also includes the amortization of the fair value of the restricted shares granted on September 9, 2011, after adjusting for the effect on the fair value of the stock options related to this transaction. The fair value will be amortized over 15 years (See Note 12).

## Fair Value of Financial Instruments

For cash and cash equivalents, short term loans, the line of credit and accounts payable, as well as interest bearing commercial loans held by the Company, the carrying amount approximates fair value due to the relative short-term nature of such instruments. The senior secured notes approximate fair value due to the relative short term of the notes and the prevailing interest rate.

## Recent Accounting Pronouncements

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 was permitted. The adoption of this guidance did not 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 did not have a material impact on the Company’s consolidated financials statements.



In February 2013, the FASB issued ASU 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.” The main objective of this update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in GAAP. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” The objective of this guidance is to clarify the balance sheet presentation of an unrecognized tax benefit and to resolve the diversity in practice that had developed in the absence of any on-point GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. For public entities, ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 204. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04, “Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (A Consensus of the FASB Emerging Issues Task Force).” The purpose of the update is to define an in substance repossession or foreclosure for purposes of determining whether or not an entity should derecognize a residential real estate collateralized consumer mortgage loan if the entity has foreclosed on the real estate. The ASU is effective for public entities for fiscal years beginning after December 15, 2014, and interim periods therein. For nonpublic entities, the ASU is effective for annual periods beginning after December 15, 2014, and interim and annual periods thereafter. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial 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.

## 3. Cash and Cash Equivalents

Effective January 1, 2008, the Company adopted ASC 820, Fair Value Measurements, which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1—Quoted prices in active markets.

Level 2—Observable inputs other than quoted prices in active markets that are either directly or indirectly observable.

Level 3—Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Cash equivalents and investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy. The Company’s Level 1 investments are valued using quoted market prices in active markets. The Company’s Level 2 investments are valued using an appraiser, broker or dealer quotations for similar assets and liabilities. As of December 31, 2013 and 2012 the Company’s Level 1 investments consisted of cash and money market accounts in the amount of approximately $1,021,000 and $241,000, respectively, and were recorded as cash and cash equivalents in the Company’s consolidated balance sheets. As of both December 31, 2013 and 2012, the Company’s Level 2 investments consisted of investments in real estate in the amount of approximately $147,000 in the Company’s consolidated balance sheets.



## 4. Commercial Loans

## Short Term Loans Receivable

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. The short term loans are initially recorded, and carried thereafter, in the financial statements at cost. 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, 2013 and 2012 the total amounts of $15,159,450 and $15,173,500, respectively, have been lent, offset by collections received from borrowers, under the commercial loans in the amount of $14,088,866 and $10,963,486, 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 also used to assist the Company’s officials in evaluating the worth of collateral. 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, 2013, the Company was committed to an additional $1,017,500 in construction loans that can be drawn by the borrower when certain conditions are met.

At December 31, 2013, the Company has made loans to eight different entities in the aggregate amount of $1,989,000, of which $899,000 is included in long-term loans receivable. One individual holds at least a fifty percent interest in each of the different entities. The Company also has made loans to six different entities in the aggregate amount of $1,761,950, of which $400,000 is included in long-term loans receivable. One individual holds at least a twenty-five percent interest in each of the borrowers. The aggregate loans to all these entities totaled $3,750,950 or 25.5% of our loan portfolio. All individuals have no relationship to any of the officers or directors of the Company.

At December 31, 2012, the Company has made loans to five different entities in the aggregate amount of $1,570,000, none of which are long term loans receivable. One individual holds one hundred percent interest in each of the entities. These loans represent 11.5% of our loan portfolio. The individual has no relationship to any of the officers or directors of the Company.

At December 31, 2013 and 2012, no one entity has loans outstanding representing more than 10% of the total balance of the loans outstanding.

At December 31, 2013, three of the loans in the Company’s portfolio were jointly funded by the Company and one to three unrelated entities, for aggregate loans of $2,400,000. The accompanying 2013 balance sheet includes the Company’s portion of the loans in the amount of $1,650,000.

At December 31, 2012, two of the loans in the Company’s portfolio were jointly funded for aggregate loans of $510,000. The accompanying 2012 balance sheet includes the Company’s portion of the loans in the amount of $255,000.

The Company generally grants loans for a term of one year. In some cases, the Company has agreed to extend the term of the loans beyond one year. This was mainly due to the additional lending conditions generally imposed by traditional lenders and financial institutions as a result of the mortgage crisis, which has made it more difficult overall for borrowers, including the Company’s borrowers, to secure long term financing. Prior to the Company granting an extension of any loan, it reevaluates the underlying collateral.



## Long Term Loans Receivable

Long term loans receivable comprise the loans that were extended beyond the original maturity dates, unless it is clear that the loan will be paid back by December 31, 2014. At December 31, 2013, the Company’s loan portfolio consists of approximately $10,698,000 short term loans receivable and $3,997,000 long term loans receivable. At December 31, 2012, the Company’s loan portfolio consists of approximately $11,023,000 short term loans receivable and approximately $2,602,000 long term loans receivable.

## Credit Risk

<table><tr><td>Performing loans</td><td>Developers-Residential</td><td>Developers-Commercial</td><td>Developers Mixed Used</td><td>Total outstanding loans</td></tr><tr><td>December 31, 2013</td><td>$ 12,467,950</td><td>$ 1,750,000</td><td>$ 477,000</td><td>$ 14,694,950</td></tr><tr><td>December 31, 2012</td><td>$ 12,169,366</td><td>$ 400,000</td><td>$ 1,055,000</td><td>$ 13,624,366</td></tr></table>

At December 31, 2013, the Company’s commercial loans include loans in the amount of $290,000, $152,000, $150,000, $150,000 and $3,307,000, originally due in 2009, 2010, 2011, 2012 and 2013, respectively. 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, 2013 and 2012, no loan impairments exist and there are no provisions for impairments of loans or recoveries thereof included in operations for the years then ended.

Subsequent to the balance sheet date, $2,452,000 of commercial loans, of which $850,000 is included in long term loans receivable, outstanding at December 31, 2013, were paid off. In addition, two of the commercial loans outstanding at December 31, 2013 have been partially paid down in the aggregate amount of $350,000, including $100,000 long term loans receivable.

## 5. Investment in Real Estate

On March 21, 2011, the Company purchased three 2-family buildings located in the Bronx, New York for $675,000, including related costs, and sold to the seller a one year option to buy back the properties for the same price (the “Buy Back Option”). The Buy Back Option was sold for $3,900, plus a monthly fee of $10,530 payable to the Company by the option holder for the life of the option.

On September 28, 2011, the option holder partially exercised the Buy Back Option with respect to one of the properties for $380,679. On October 1, 2011, the Company issued a new one year option for the two remaining properties at an aggregate exercise price of $294,321 with a monthly option fee of $4,591 (the “New Option”). On October 21, 2011, the option holder partially exercised the New Option to buy back one of the two remaining properties for $147,500 and had a continuing option, though October 1, 2012, to purchase the one remaining property at an exercise price of $146,821 with a monthly option fee of $2,296. Subsequently, the New Option’s expiration date was extended twice, on October 1, 2012, which extended the expiration date through March 30, 2013, and again on April 1, 2013, which extended the expiration date through September 30, 2013.

The New Option expired on September 30, 2013, and the Company continues to receive option fee payments on a month-to-month basis from the former option holder. On March 10, 2014, the Company entered into a Contract of Sale for this property with a third-party for a purchase price of $410,000. Prior to consummation of this sale the Company will refuse to allow the option to be renewed or reach an agreement with the option holder to allow the sale to be consummated.

Other income for each of the years ended December 31, 2013 and 2012, in the amount of $27,548, represents the fees generated from the seller buy back options.

## 6. Investment in Privately Held Company

The Company has an investment in privately held Israeli-based company that offers surgeons and radiologists the ability to detect cancer in real time.



Due to the fact that the privately held company is experiencing delays in executing its business plan, the Company determined to write down the value of its investment to $65,000 at December 31, 2013, resulting in a charge to the statement of operations of $35,000 during the year ended December 31, 2013.

## 7. Loans and Lines of Credit

## Short Term Loans

At December 31, 2013, the Company owed an aggregate of $1,319,465 under six separate short term loans, bearing interest at rates ranging from 8% to 10% per annum. One of the loans in the amount of $160,000, bearing interest at the rate of 10% per annum, is from a parent of a member of the board of directors. Interest expense on this loan amounted to $4,978 for the year ended December 31, 2013. The loans are secured by certain of the Company’s short term loans pursuant to a security agreement, and two of the loans are also personally guaranteed by the Company’s CEO.

During 2012, the Company received five separate short-term loans from three different entities, in the aggregate amount of $1,030,000, bearing interest at rates ranging from 10% to 14%, per annum. By the end of December 31, 2012, the Company repaid in full three of the five loans in the aggregate amount of $590,000. At December 31, 2012, the outstanding balance of the short-term loans is $1,399,465, of which five of the loans were secured by certain of the Company’s short term loans, pursuant to a security agreement, and two of the loans were also personally guaranteed by our CEO.

## Lines of Credit

On May 2, 2012, the Company entered into a one-year revolving Line of Credit Agreement with Sterling National Bank pursuant to which the Bank agreed to advance up to $3.5 million (the “Sterling Credit Line”) against assignments of mortgages and other collateral. The Sterling Credit Line was conditioned on an unlimited personal guarantee from Assaf Ran, the Company’s CEO, 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 (3.25% at December 31, 2013), but in no event less than 6%, per annum, on the money in use. Total initiation costs for the Sterling Credit Line were approximately $16,000. These costs are being amortized over one year, using the straight-line method. The amortization costs for the years ended December 31, 2013 and 2012 were $5,341 and $10,683, respectively.

On January 31, 2013, the Company entered into an amendment to the Line of Credit Agreement with Sterling National Bank to increase the Sterling Credit Line from $3.5 million to $5 million, under the same terms as the original line of credit (the “Amendment”). In connection with the Amendment, Mr. Ran agreed to increase his personal guarantee to $5 million. Effective on May 1, 2013 and July 1, 2013, the term of the Sterling Credit Line was extended through July 1, 2013 and July 1, 2014, respectively.

On December 13, 2013, the Company entered into another amendment to the Line of Credit Agreement with Sterling National Bank to increase the Sterling Credit Line from $5 million to $7 million, under the same terms as the original line of credit (the “Second Amendment”). In connection with the Second Amendment, Mr. Ran agreed to increase his personal guarantee to $7 million. At December 31, 2013, the outstanding balance of the Sterling Credit Line is $5,350,000. At December 31, 2012, the outstanding amount under the Sterling Credit Line was $3,500,000.

## 8. Senior Secured Notes

On December 28, 2010, MBC Funding completed a $500,000 private placement of three-year 6.63% senior secured notes. As collateral for these notes, MBC agreed to assign to MBC Funding the mortgages and related notes that it held as a creditor in the aggregate amount of no less than $750,000. MBC also guaranteed the repayment of the notes. The notes required quarterly payments of interest only through the expiration date, December 28, 2013.

Financing costs incurred in connection with the agreement totaled $109,183, including five year warrants (the “warrants”) to purchase 20,000 shares of Common Stock issued to the underwriter at $2.50 per share, which were valued at $11,683. These costs were amortized over the life of the senior secured notes. The amortization costs for each of the years ended December 31, 2013 and 2012 were $36,395. In December 2013, the Company repaid all senior secured notes in full.



## 9. Income Taxes

Income tax expense consists of the following:

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Current Taxes:</td><td></td><td></td></tr><tr><td>Federal</td><td>$ 306,900</td><td>$ 241,995</td></tr><tr><td>State</td><td>$ 80,100</td><td>$ 61,325</td></tr><tr><td></td><td>387,000</td><td>303,320</td></tr><tr><td>Deferred taxes:</td><td></td><td></td></tr><tr><td>Federal</td><td>---</td><td>---</td></tr><tr><td>State</td><td>---</td><td>---</td></tr><tr><td>Income tax expense</td><td>$ 387,000</td><td>$ 303,320</td></tr></table>

Deferred tax assets consist of the following:

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Deferred tax assets:</td><td></td><td></td></tr><tr><td>Capital loss carryover</td><td>$ 105,200</td><td>$ ---</td></tr><tr><td>Compensation expense - other</td><td>8,766</td><td>7,838</td></tr><tr><td>Compensation expense - restricted stocks</td><td>78,388</td><td>86,226</td></tr><tr><td>Deferred tax assets</td><td>192,354</td><td>94,064</td></tr><tr><td>Less: valuation allowance</td><td>(192,354)</td><td>(94,064)</td></tr><tr><td></td><td>$ ---</td><td>$ ---</td></tr></table>

The Company has a capital loss carryover of $390,609, a portion of which it expects to utilize to offset its other income in the amount of $27,548, in connection with the filing of its income tax returns for the year ended December 31, 2013. In addition, the Company is expected to realize a taxable gain from the sale of property discussed in Note 5 that will be offset by the capital loss carryover in connection with the filing of its income tax returns for the year ended December 31, 2014. The remaining capital loss carryover expires through 2015.

The income tax expense (benefit) differs from the amount computed using the federal statutory rate of 34% as a result of the following:

<table><tr><td>Year Ended December 31,</td><td>2013</td><td>2012</td></tr><tr><td>Federal Statutory Rate</td><td>34%</td><td>34%</td></tr><tr><td>State and local income tax expense net of federal tax effect</td><td>6%</td><td>9%</td></tr><tr><td>Valuation allowance</td><td>---</td><td>---</td></tr><tr><td>State and local franchise taxes</td><td>---</td><td>---</td></tr><tr><td>Other</td><td>---</td><td>1%</td></tr><tr><td>Income tax expense</td><td>40%</td><td>44%</td></tr></table>

The Company evaluates tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more likely than not” of being sustained by the applicable tax authorities. Tax positions not deemed to meet the more likely than not threshold are recorded as tax benefits or expenses in the current year. Management has analyzed the Company’s tax positions taken on Federal, state and local tax returns for all open tax years, and has concluded that no provision for Federal income tax is required in the Company’s financial statements. The Company reports interest and penalties as income tax expense, which amounted to approximately $3,800 and $7,400 for the years ended December 31, 2013 and 2012, respectively.

The Company is no longer subject to U.S. federal and state and local income tax examinations by tax authorities for years prior to 2010, as these tax years are closed.



# Notes to Consolidated Financial Statements

## 10. Simple IRA Plan

On October 26, 2000, the Board of Directors approved a Simple IRA Plan (the “IRA Plan”) for the purpose of attracting and retaining valuable executives. The IRA Plan was effective August 2000 with a trustee, which allows up to 100 eligible executives to participate. It is a “Matching Contribution” plan under which eligible executives may contribute up to 6% of their yearly salary, on a pre-tax basis (with a cap of $12,000), with the Company matching on a dollar-for-dollar basis up to 3% of the executives’ compensation (with a cap of $12,000). These thresholds are subject to change under notice by the trustee. The Company is not responsible for any other costs under this plan. For the years ended December 31, 2013 and 2012 the Company contributed $9,100 and $9,000, respectively, as matching contributions to the IRA Plan.

## 11. Stock-Based Compensation

On June 23, 2009 the Company adopted the 2009 Stock Option Plan (the “Plan”) and replaced the 1999 Stock Option Plan as amended (the “Prior Plan”), which expired in May of 2009. Options granted under the Prior Plan remain outstanding until expired, exercised or cancelled.

The purpose of the Plan is to align the interests of officers, other key employees, consultants and non-employee directors of the Company and its subsidiaries with those of the stockholders of the Company, to afford an incentive to such officers, employees, consultants and directors to continue as such, to increase their efforts on behalf of the Company and to promote the success of the Company’s business. The availability of additional shares will enhance the Company’s ability to achieve these goals. The basis of participation in the Plan is upon discretionary grants of the Board. The Board may at any time, and from time to time, suspend or terminate the Plan in whole or in part or amend it from time to time.

The maximum number of Common Shares reserved for the grant of awards under the Plan is 400,000, subject to adjustment as provided in Section 9 of the Plan. As of December 31, 2013, 355,000 options were granted, 210,000 options were cancelled, and 255,000 are available for grant under the 2009 stock option plan.

The exercise price of options granted under the Company’s stock option plan may not be less than the fair market value on the date of grant. Stock options under our stock option plan may be awarded to officers, key-employees, consultants and non-employee directors of the Company. Under our stock option plan, every non-employee director of the Company is granted 7,000 options upon first taking office, and then 7,000 upon each additional year in office. Generally, options outstanding vest over periods not exceeding four years and are exercisable for up to five years from the grant date.

Share based compensation expense recognized under ASC 718 for the years ended December 31, 2013 and 2012 were $35,578 and 30,879, respectively.

The stock based compensation expense for each of the years ended December 31, 2013 and 2012 includes $13,065 of amortization of the fair value of the 1,000,000 restricted shares granted to the Company’s Chief Executive Officer on September 9, 2011 of $195,968, after adjusting for the effect on the fair value of the stock options related to this transaction. The fair value will be amortized over 15 years (See Note 12).

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average share assumptions used for grants in 2013 and 2012, respectively: (1) expected life of 5 years; (2) annual dividend yield of 2.61% to 0%; (3) expected volatility 75% to 74.6%; and (4) risk free interest rate of 1.07% to 0.73%.



## Notes to Consolidated Financial Statements

The following summarizes stock option activity for the years ended December 31, 2013 and 2012:

<table><tr><td></td><td>Number of Shares</td><td>Weighted Average Exercise Price</td><td>Weighted Average Remaining Contractual Term (in years)</td><td>Aggregate Intrinsic Value</td></tr><tr><td>Outstanding at January 1, 2012</td><td>348,000</td><td>$ 0.96</td><td>2.26</td><td>$ 177,253</td></tr><tr><td>Granted in 2012</td><td>28,000</td><td>1.02</td><td></td><td></td></tr><tr><td>Exercised in 2012</td><td>---</td><td>---</td><td></td><td></td></tr><tr><td>Forfeited in 2012</td><td>(21,000)</td><td>1.65</td><td></td><td></td></tr><tr><td>Outstanding at December 31, 2012</td><td>355,000</td><td>$ 0.92</td><td>1.62</td><td>$ 173,006</td></tr><tr><td>Granted in 2013</td><td>28,000</td><td>1.53</td><td></td><td></td></tr><tr><td>Exercised in 2013</td><td>(28,000)</td><td>0.81</td><td></td><td></td></tr><tr><td>Forfeited or expired in 2013</td><td>(70,000)</td><td>1.01</td><td></td><td></td></tr><tr><td>Outstanding at December 31, 2013</td><td>285,000</td><td>$ 0.97</td><td>1.43</td><td>$ 147,656</td></tr><tr><td>Vested and exercisable at December 31, 2012</td><td>352,000</td><td>$ 0.92</td><td>1.60</td><td>$ 171,208</td></tr><tr><td>Vested and exercisable at December 31, 2013</td><td>283,000</td><td>$ 0.97</td><td>1.42</td><td>$ 146,458</td></tr></table>

The weighted-average fair value of each option granted during the years ended December 31, 2013 and 2012, estimated as of the grant date using the Black-Scholes option-pricing model, was $0.78 per option and $0.61 per option, respectively.

Mr. Ran, our CEO, agreed not to exercise his 140,000 Remaining Options, which are vested and outstanding as of December 31, 2013, in accordance with the Restricted Stock Agreement (See Note 12).

A summary of the status of the Company’s nonvested shares as of December 31, 2013 and 2012, and changes during the years then ended is as presented below:

<table><tr><td></td><td>Number of Shares</td><td>Weighted Average Exercise Price</td><td>Weighted Average Remaining Contractual Term (in years)</td></tr><tr><td>Nonvested shares at January 1, 2012</td><td>4,000</td><td>$ 1.01</td><td>4.88</td></tr><tr><td>Granted</td><td>28,000</td><td>1.02</td><td>4.50</td></tr><tr><td>Vested</td><td>(29,000)</td><td>1.02</td><td>4.48</td></tr><tr><td>Nonvested shares at December 31, 2012</td><td>3,000</td><td>$ 1.01</td><td>3.88</td></tr><tr><td>Granted</td><td>28,000</td><td>1.53</td><td>4.50</td></tr><tr><td>Vested</td><td>(29,000)</td><td>1.51</td><td>4.44</td></tr><tr><td>Nonvested shares at December 31, 2013</td><td>2,000</td><td>$ 1.01</td><td>2.88</td></tr></table>

The following table summarizes information about stock options outstanding at December 31, 2013:

<table><tr><td></td><td colspan="3">Stock Option Outstanding</td><td colspan="2">Exercisable</td></tr><tr><td>Range of Exercise Prices</td><td>Number of Shares</td><td>Weighted Average Exercise Price</td><td>Weighted Average Remaining Contractual Term (in years)</td><td>Number of Shares</td><td>Weighted Average Exercise Price</td></tr><tr><td>$ 0.50- $ 1.00</td><td>168,000</td><td>$ 0.77</td><td>0.29</td><td>168,000</td><td>$ 0.77</td></tr><tr><td>$ 1.01- $ 2.00</td><td>117,000</td><td>1.26</td><td>3.05</td><td>115,000</td><td>1.27</td></tr><tr><td></td><td>285,000</td><td>$ 0.97</td><td>1.43</td><td>283,000</td><td>$ 0.97</td></tr></table>



In connection with the Company’s private placement of senior secured notes the Company issued to Paulson 20,000 warrants. The warrants are convertible into the same number of common shares at an exercise price of $2.50 per warrant. The warrants are exercisable over a five-year period beginning December 28, 2010.

## 12. Restricted Stock Grant

On September 9, 2011, upon stockholders approval at the 2011 annual meeting of stockholders, the Company granted 1,000,000 shares of its restricted common stock (the “Restricted Shares”) to Mr. Ran, the Company’s chief executive officer. Under the terms of the restricted shares agreement (the “Restricted Shares Agreement”), Mr. Ran agreed to forfeit options held by him exercisable for an aggregate of 280,000 shares of common stock of the Company (“Common Stock”) with exercise prices above $1.21 per share and agreed not to exercise additional options held by him for an aggregate of 210,000 shares of Common Stock with exercise prices below $1.21 per share (the “Remaining Options”). Until their expiration, Mr. Ran will be required to forfeit approximately 4.76 Restricted Shares for each share of Common Stock issued upon any exercise of the Remaining Options. In addition, Mr. Ran may not sell, convey, transfer, pledge, encumber or otherwise dispose of the Restricted Shares until the earliest to occur of the following: (i) September 9, 2026, with respect to 1/3 of the Restricted Shares, September 9, 2027 with respect to an additional 1/3 of the Restricted Shares and September 9, 2028 with respect to the final 1/3 of the Restricted Shares; (ii) the date on which Mr. Ran’s employment is terminated by the Company for any reason other than for “Cause” (i.e., misconduct that is materially injurious to us monetarily or otherwise, including engaging in any conduct that constitutes a felony under federal, state or local law); or (iii) the date on which Mr. Ran’s employment is terminated on account of (A) his death; or (B) his disability, which, in the opinion of his personal physician and a physician selected by the Company prevents him from being employed with the Company on a full-time basis (each such date being referred to as a “Risk Termination Date”). If at any time prior to a Risk Termination Date Mr. Ran’s employment is terminated by the Company for Cause or by Mr. Ran voluntarily for any reason other than death or disability, Mr. Ran will forfeit that portion of the Restricted Shares which have not previously vested. Mr. Ran will have the power to vote the Restricted Shares and will be entitled to all dividends payable with respect to the Restricted Shares from the date the Restricted Shares are issued.

In connection with the Compensation Committee’s approval of the foregoing grant of Restricted Shares, the Compensation Committee consulted with and obtained the concurrence of independent compensation experts and informed Mr. Ran that it had no present intention of continuing its prior practice of annually awarding stock options to Mr. Ran as CEO. Also Mr. Ran, advised the Compensation Committee that he would not seek future stock option grants.

The grant of Restricted Shares was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. The stock certificates for the Restricted Shares were imprinted with restrictive legends and are held in escrow until vesting occurs.

## 13. Stockholders' Equity

On September 19, 2012, the Company adopted a stock buy-back program for the repurchase of up to 100,000 shares of the Company's common stock. During 2012 and 2013 the Company has purchased 96,269 common shares from this repurchase program, at an aggregate cost of approximately $128,000.

## 14. Commitments and Contingencies

## Operating Leases

On June 9, 2011, the Company entered into a new lease agreement (the “Lease”) to relocate its corporate headquarters to 60 Cutter Mill Road, Great Neck, New York. The Lease is for a term of five years and two months commencing June 2011 and ending August 2016. The rent increases annually during the term and ranges from approximately $2,800 per month during the first year to approximately $3,200 per month during the fifth year.



At December 31, 2013, approximate future minimum rental, including utilities, payments under these commitments are as follows:

<table><tr><td>2014</td><td>$ 40,300</td></tr><tr><td>2015</td><td>41,400</td></tr><tr><td>2016</td><td>28,100</td></tr><tr><td>Total</td><td>$ 109,800</td></tr></table>

Rent expense, including utilities, was approximately $39,000 and $38,000 in 2013 and 2012, respectively.

## Employment Agreements

In March 1999, we entered into an employment agreement with Assaf Ran, our President and Chief Executive Officer pursuant to which: (i) Mr. Ran’s employment term renews automatically on June 30th of each year for successive one-year periods unless either party gives to the other written notice at least 180 days prior to June 30th of its intention to terminate the agreement; (ii) Mr. Ran receives an annual base salary of $225,000 and annual bonuses as determined by the Compensation Committee of the Board, in its sole and absolute discretion, and is eligible to participate in all executive benefit plans established and maintained by us; and (iii) Mr. Ran agreed to a one-year non-competition period following the termination of his employment.

Mr. Ran’s annual base compensation was $225,000, and a bonus of $65,000 for each of the years 2013 and 2012 which was approved by the Compensation Committee.

## Derivative Action

The Company was sued in 2011 as a nominal defendant in a stockholder derivative action, Alan R. Kahn v. Assaf Ran, et al., Supreme Court of the State of New York, County of Nassau, filed against the members of its Board of Directors. The plaintiff, who asserted that he was a stockholder of the Company at all pertinent times, alleged wrongdoing by the Board in a transaction in which Director and Chief Executive Officer, Assaf Ran, was granted certain shares of the Company’s restricted stock in exchange for giving up his rights in certain options that he had held at the time of the transaction. Plaintiff contended that the Company was harmed by the transaction. The Directors disagreed with the plaintiff’s position that the transaction involved any wrongful conduct or that it harmed the Company in any way. The court dismissed the original complaint, but gave plaintiff leave to file an amended complaint, which the plaintiff did. The defendants moved to dismiss the amended complaint, but before the court ruled on that motion, the parties reached an agreement to settle the action, subject to approval of the court. The terms of the settlement include the Company’s agreement to continue utilizing certain corporate governance matters that the Company had already implemented before the lawsuit was filed and would continue to implement regardless of the settlement agreement, and to pay Plaintiff’s counsel’s fees and expenses in an amount to be determined by the court, which amount shall not exceed $80,000. In addition, Assaf Ran will reiterate his commitment to extend his personal guarantee to the Company for up to $5 million. This commitment was available to the Company prior to the settlement agreement. After the court preliminarily approved the settlement, the Company provided notice of the settlement to stockholders, in order to provide them with an opportunity to object to the settlement if they choose to do so. No stockholders submitted any objections to the settlement. At a final hearing to address the fairness and reasonableness of the settlement held on April 2, 2013, the court approved the settlement, dismissed the action, and awarded plaintiff $80,000 in fees and costs. The fee award has been paid by an officers’ and directors’ liability insurance policy, rather than by the Company. As a result of the court’s ruling, the litigation has been concluded.



## 15. Related Parties Transactions

In 2012, Mr. Ran made seven separate loans to the Company in amounts ranging from $25,000 to $115,000, bearing interest at rates ranging from 6% to 12%, per annum. All of these loans were repaid by the Company as of December 31, 2012. The aggregate interest expense for these loans was $3,942.

In 2013, Mr. Ran made five separate loans to the Company in amounts ranging from $50,000 to $100,000, bearing interest at the rate of 6% per annum. All of these loans were repaid by the Company as of December 31, 2013. The aggregate interest expense for these loans was $1,124.

In September 2013, the Company received a short-term loan in the amount of $160,000, from a parent of a member of the board of directors, bearing interest at the rate of 10% per annum.



# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Manhattan Bridge Capital, Inc.

We have audited the accompanying consolidated balance sheets of Manhattan Bridge Capital, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 2013. Manhattan Bridge Capital, Inc.'s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Manhattan Bridge Capital, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

Hohmann, Ludden & Caw, P.C.

Hoberman, Goldstein & Lesser, CPA's, P.C.

New York, New York
March 21, 2014



This page was left blank intentionally



## EXECUTIVE OFFICERS

Assaf Ran
Chief Executive Officer and President

Vanessa Kao
Chief Financial Officer, Vice President, Treasurer and Secretary

## BOARD OF DIRECTORS

Assaf Ran, Chairman of the Board
Michael J. Jackson (1)
Eran Goldsmith (1)
Mark Alhadef
Lyron Bentovim (2)

(1) Member of the Compensation Committee, Audit Committee and Nominating Committee

(2) Member of the Audit Committee

## SHAREOWNER SERVICES

Questions about stock-related matters may be directed to our transfer agent:

American Stock Transfer and Trust Company, LLC
6201 15 Avenue
Brooklyn, NY 11219
Phone: 800-937-5449
Email: info@amstock.com

## COUNSEL

Morse, Zelnick, Rose & Lander, LLP
825 Third Avenue, 16th Floor
New York, NY 10022

## INDEPENDENT PUBLIC ACCOUNTANTS

Hoberman, Goldstein & Lesser, CPA's, P.C.
226 West 26th Street, 8th Floor
New York, NY 10001

## OTHER INFORMATION

A copy of the Company’s annual report on Form 10-K, as amended, filed with the Securities and Exchange Commission may be obtained without charge by any shareholder by sending a written request to:

Manhattan Bridge Capital Inc.
Investor Relations Department
60 Cutter Mill Road, Suite 205
Great Neck, NY 11021
(516) 444-3400
or at www.manhattanbridgecapital.com

Additional information can be received by contacting our investor relations department at the telephone number above.

## STOCK MARKET INFORMATION

(a) The high and low sales prices for our common stock as reported by the NASDAQ Capital Market for the quarterly periods indicated were as follows:

<table><tr><td>2012</td><td>High</td><td>Low</td></tr><tr><td>First Quarter</td><td>$1.44</td><td>$0.90</td></tr><tr><td>Second Quarter</td><td>$1.17</td><td>$0.95</td></tr><tr><td>Third Quarter</td><td>$1.05</td><td>$0.84</td></tr><tr><td>Fourth Quarter</td><td>$1.12</td><td>$0.98</td></tr><tr><td>2013</td><td></td><td></td></tr><tr><td>First Quarter</td><td>$1.50</td><td>$1.02</td></tr><tr><td>Second Quarter</td><td>$1.74</td><td>$1.20</td></tr><tr><td>Third Quarter</td><td>$2.18</td><td>$1.42</td></tr><tr><td>Fourth Quarter</td><td>$2.30</td><td>$1.65</td></tr><tr><td>2014</td><td></td><td></td></tr><tr><td>First Quarter</td><td>$2.14</td><td>$1.58</td></tr></table>

## (b) Holders

As of April 22, 2014, the approximate number of record holders of our common stock was 18. The number of holders does not include individuals or entities who beneficially own shares but whose shares, which are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one record holder. American Stock Transfer & Trust Company serves as transfer agent for our shares of common stock.

## (c) Dividends

The holders of our common stock are entitled to receive dividends as may be declared by the Company’s Board of Directors (the “Board”). During 2013, the Board approved four quarterly dividend payments commencing in the second quarter of 2013, of $.01 per common share, for a total of $.04 per common share. Payments of future dividend are within the discretion of our Board and will depend on, among other factors, our retained earnings, capital requirements, operations and financial condition.

In February 2014, the Board approved four quarterly dividends of $0.02 per common share for the period commencing the second quarter of 2014 and ending the first quarter of 2015 (“Quarterly Dividends”) of which a dividend of $0.02 per common share was paid on May 20, 2014 to shareholders of record on May 15, 2014.

In June 2014, the Board replaced the remaining Quarterly Dividends with a new increased quarterly dividend of $0.07 per common share payable on each of July 15, 2014, October 15, 2014, January 15, 2015 and April 15, 2015 to shareholders of record on July 10, 2014, and October 10, 2014, January 10, 2015 and April 10, 2015.



MANHATTAN
BRIDGE CAPITAL

60 Cutter Mill Road, Suite 205
Great Neck, NY 11021

TEL: 516-444-3400

FAX: 516-444-3404

www.manhattanbridgecapital.com