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

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

FOR THE THREE MONTHS ENDED JUNE 30, 2020

FOR THE THREE MONTHS ENDED JUNE 30, 2019

FOR THE SIX MONTHS ENDED JUNE 30, 2020

FOR THE SIX MONTHS ENDED JUNE 30, 2019

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

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

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

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September
June 30, 20192020

1. THE COMPANY

The accompanying unaudited consolidated financial statements of Manhattan Bridge Capital, Inc. (“MBC”), a New York corporation founded in 1989, and its consolidated subsidiary, MBC Funding II Corp. (“MBC Funding II”Funding”), a New York corporation formed in December 2015 (collectively referred to herein as the “Company”), have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 20182019 and the notes thereto included in the Company’s Annual Report on Form 10-K. Results of consolidated operations for the interim period are not necessarily indicative of the operating results to be attained in the entire fiscal year.

The preparation of consolidated financial statements in conformity with GAAP 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 amount of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.

The consolidated financial statements include the accounts of MBC and MBC Funding II.Funding. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company offers short-term, secured, non–banking loans to real estate investors (also known as hard money) to fund their acquisition, renovation, rehabilitation or development of residential or commercial properties located in the New York metropolitan area, including New Jersey and Connecticut, and in Florida.

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 presents deferred financing costs, excluding those incurred in connection with its line of credit, in the balance sheet as a direct reduction from the related debt liability rather than an asset, in accordance with Accounting Standards Update (“ASU”) 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”.Costs.” These costs, incurred in connection with the issuance of the Company’s senior secured notes, are being amortized over ten years, using the straight-line method, as the difference between use of the effective interest method is not material.

The Company initially established a credit line pursuant toDeferred financing costs in connection with the Company’s Amended and Restated Credit and Security Agreement, as amended (the “Amended and Restated Credit Agreement”), with Webster Business Credit Corporation (“Webster”) dated February 27, 2015, Flushing Bank (“Flushing”) and Mizrahi Tefahot Bank Ltd (“Mizrahi”), which established the Company’s credit line (the “Webster Credit Line”), which was subsequently amended and restated on August 8, 2017 (“Amended Credit Agreement”) with Webster and Flushing Bank (“Flushing”). Deferred financing costs in connection with the Webster Credit Line and the Amended Credit Agreement, as discussed in Note 5,4, are presented as an asset in the consolidated balance sheet, in accordance with ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated With Line of Credit Arrangements”.Arrangements.” These costs are being amortized over the term of the respective agreement, using the straight-line method.

2. RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS

In May 2014,2019, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance, including industry specific guidance. Several ASUs expanding and clarifying the initial guidance issued in ASU 2014-09 have been released since May 2014. Exclusions from the scope of this guidance include revenue resulting from loans, investment securities (available-for-sale and trading), investments in unconsolidated entities and leases. The Company adopted the ASU effective January 1, 2018. The Company evaluated the applicability of this guidance and concluded that the adoption did not have an effect on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which amends the existing accounting standards for leases. This ASU requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet for the obligation to make payments for all leases, with the exception of those leases with a term of 12 months or less. This ASU also requires expanded disclosures regarding leasing arrangements. The Company adopted the ASU effective January 1, 2019, and concluded that the adoption did not have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. 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 May 2019, the FASB issued ASU 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief.”Relief”, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of an allowance for credit losses. This ASU also allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The Company plans to adoptadopted both ASU 2016-13 and ASU 2019-05 effective January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU modifies Accounting Standards Codification (“ASC”) 740 to remove certain exceptions and also add guidance to reduce complexity in certain areas. For companies that file with the Securities and Exchange Commission, the standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted but requires simultaneous adoption of all provisions of the new standard. The Company believes that the adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (“ASC 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. The amendments in the ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

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

3. COMMERCIAL LOANS

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, including New Jersey and Connecticut, and in Florida. The loans are principally secured by collateral consisting of first mortgage positions on real estate and, generally, accompanied by personal guarantees from the principals of the borrowers. 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.

At SeptemberJune 30, 2019,2020, the Company was committed to $7,188,035$6,580,875 in construction loans that can be drawn by the borrowers when certain conditions are met.

At SeptemberJune 30, 2019,2020, no one entity has loans outstanding representing more than 10% of the total balance of the loans outstanding.

The Company generally grants loans for a term of one year. When a performing loan reaches its maturity and the borrower requests an extension, the Company may extend the term of the loan beyond one year. Prior to granting an extension of any loan, the Company reevaluates the underlying collateral.

Credit Risk

Credit risk profile based on loan activity as of SeptemberJune 30, 20192020 and December 31, 2018:2019:

At SeptemberJune 30, 2019,2020, the Company’s loans receivable includesconsisted of loans in the amount of $360,000, $3,960,000$367,500, $1,594,463, $2,405,000 and $4,362,000$7,998,071, originally due in 2016, 2017, 2018 and 2018,2019, respectively. InDuring the second quarter of 2020, the Company agreed to grant forbearances in an aggregate amount of approximately $30,000 to two of its long term borrowers deferring certain interest payments to the scheduled payoff date, due to the COVID-19 pandemic. With the exception of these two borrowers, 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 SeptemberJune 30, 2019,2020, no loan impairments exist and there are no provisions for impairments of loans or recoveries thereof.

Subsequent to the balance sheet date, $1,960,000approximately $400,000 of the loans receivable at SeptemberJune 30, 20192020 were paid off.

4. CASH - RESTRICTED

5. LINE OF CREDIT

The Company maintains the Webster Credit Line which currently provides it with a credit line of $25$32.5 million in the aggregate secured by assignments of mortgages and other collateral. The Webster Credit Line contains various covenants and restrictions including, among other covenants and restrictions, limiting the amount that the Company can borrow relative to the value of the underlying collateral, maintaining various financial ratios and limitations on the terms of loans the Company makes to its customers, limiting the Company’s ability to pay dividends under certain circumstances, and limiting the Company’s ability to repurchase its common shares, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates. In addition, the Webster Credit Line contains a cross default provision which will deem any default under any indebtedness owed by us or our subsidiary, MBC Funding, as a default under the credit line.

Effective July 11, 2018, the Company entered into a Waiver and Amendment No. 1 to the Amended and Restated Credit Agreement (“Amendment II”No. 1”) with Webster, Flushing and Mr. Assaf Ran, the Company’s President and Chief Executive Officer, as guarantor. In conjunction with the execution of Amendment II, the Company also entered into an Amended and Restated Revolving Credit Note in the principal aggregate amount of $10,000,000 with Flushing (the “Amended Flushing Note”) and a Second Amended and Restated Fee Letter with Webster and Flushing, each dated July 11, 2018. Pursuant to the terms of Amendment II,No. 1, the Company’s existing Webster Credit Line was increased by $5 million to $25 million in the aggregate. In addition, the interest rates relating to the Webster Credit Line were amended such that the interest rates now equal (i) LIBOR plus a premium, which rate aggregated approximately 6.02%4.16%, including a 0.5% agency fee, as of SeptemberJune 30, 2019,2020, or (ii) a Base Rate (as defined in the Amended and Restated Credit Agreement) plus 2.25% plus a 0.5% agency fee, as chosen by the Company for each drawdown. Amendment IINo. 1 also permits the Company to repurchase, redeem or otherwise retire its equity securities in an amount not to exceed ten percent of our annual net income from the prior fiscal year. In addition, Mr. Ran has provided a personal guaranty to the Webster Credit Line, which shall not exceed the sum of $500,000 plus any costs relating to the enforcement of the personal guaranty. Furthermore, on December 31, 2019, the Company entered into Amendment No. 2 to the Amended and Restated Credit and Security Agreement with Webster and Flushing to amend certain required fixed charge coverage requirements.

The costs to establish and to amend the Webster Credit Line are being amortized over the term of the respective agreement, using the straight-line method. The amortization costs for the ninesix month periods ended SeptemberJune 30, 2020 and 2019 were $12,713 and 2018 were $14,552 and $18,759,$9,702, respectively. The Webster Credit Line expires February 28, 2021, unless sooner terminated, and contains a provision that permits a Company option for a further extension until February 28, 2022, subject to Webster’s consent.

The Company was in compliance with all covenants of the Webster Credit Line, as amended, as of SeptemberJune 30, 2019. The Company received a one-time waiver by Webster for the need by the Company to comply with the Fixed Charge Ratio (as defined in the Webster Credit Line) provision as of September2020. At June 30, 2019. At September 30, 2019,2020, the outstanding amount under the Amended Credit Agreement was $21,864,042.$18,076,228. The interest rate on the amount outstanding fluctuates daily. The rate, including a 0.5% Agency Fee, at SeptemberJune 30, 2019,2020 was approximately 6.02%4.16%.

6. SENIOR SECURED NOTES

On April 25, 2016, in an initial public offering, MBC Funding issued 6% senior secured notes, due April 22, 2026 (the “Notes”) in the aggregate principal amount of $6,000,000 under the Indenture, dated April 25, 2016, among MBC Funding, as Issuer, the Company, as Guarantor, and Worldwide Stock Transfer LLC, as Indenture Trustee (the “Indenture”). The Notes, having a principal amount of $1,000 each, are listed on the NYSE American and trade under the symbol “LOAN/26”.26.” Interest accrues on the Notes commencing on May 16, 2016. The accrued interest is payable monthly in cash, in arrears, on the 15th day of each calendar month commencing June 2016.

Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by MBC Funding, together with MBC Funding’s cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times. To the extent the aggregate principal amount of the mortgage loans owned by MBC Funding plus MBC Funding’s cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, MBC Funding is required to repay, on a monthly basis, the principal amount of the Notes equal to the amount necessary such that, after giving effect to such repayment, the aggregate principal amount of all mortgage loans owned by MBC Funding plus, MBC Funding’s cash on hand at such time is equal to or greater than 120% of the outstanding principal amount of the Notes. For this purpose, each mortgage loan is deemed to have a value equal to its outstanding principal balance, unless the borrower is in default of its obligations.

MBC Funding may redeem the Notes, in whole or in part, at any time after April 22, 2019 upon at least 30 days prior written notice to the Noteholders. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest thereon up to, but not including, the date of redemption, without penalty or premium; provided that (i) if the Notes are redeemed on or after April 22, 2019 but prior to April 22, 2020, the redemption price will be 103% of the principal amount of the Notes redeemed and (ii) if the Notes are redeemed on or after April 22, 2020 but prior to April 22, 2021, the redemption price will be 101.5% of the principal amount of the Notes redeemed plus, in either case, the accrued but unpaid interest on the Notes redeemed up to, but not including, the date of redemption. No Notes were redeemed prior to April 22, 2020.

Each Noteholder has the right to cause MBC Funding to redeem his, her or its Notes on April 22, 2021. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest up to, but not including, the date of redemption, without penalty or premium. In order to exercise this right, the Noteholder must notify MBC Funding, in writing, no earlier than November 22, 2020 and no later than January 22, 2021. All Notes that are subject to a properly and timely notice will be redeemed on April 22, 2021. Any Noteholder who fails to make a proper and timely election will be deemed to have waived his, her or its right to have his, her or its Notes redeemed prior to the maturity date.

MBC Funding is obligated to offer to redeem the Notes if there occurs a “change of control” with respect to MBC Funding or the Company or if MBC Funding or the Company sell any assets unless, in the case of an asset sale, the proceeds are reinvested in the business of the seller. The redemption price in connection with a “change of control” will be 101% of the principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption. The redemption price in connection with an asset sale will be the outstanding principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption.

7. EARNINGS PER SHARE OF COMMON STOCK

The Company adopted a share buy back program on February 26, 2020 for the repurchase of up to 100,000 of the Company’s common shares in the next twelve months. The Company has purchased an aggregate of 31,999 common shares under this repurchase program, at an aggregate cost of approximately $152,000, as of June 30, 2020.

Basic and diluted earnings per share are calculated in accordance with Accounting Standards Codification (“ASC”)ASC 260, “Earnings Per Share” (“ASC 260”). Under ASC 260, basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to 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 period is the reported net income.

The denominator is based on the following weighted average number of common shares:

For each of the three and nine month periodssix months ended SeptemberJune 30, 2019, 42,106 and 42,161, exercisable2020, vested warrants to purchase 33,612 common shares were not included in the diluted earnings per share calculation respectively, because their effect would have been anti-dilutive. For the three and nine month periodssix months ended SeptemberJune 30, 2018, 46,9022019, 43,959 and 47,005, exercisable43,922 vested stock options and warrants were not included in the diluted earnings per share calculation, respectively, because their effect would have been anti-dilutive.

8. 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” (“ASC 718”), which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. A key provision of ASC 718 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. 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.

Stock based compensation expense recognized under ASC 718, “Compensation – Stock Compensation,” for each of the nine monthssix month periods ended SeptemberJune 30, 2020 and 2019 and 2018 of $9,798$6,532 represents the amortization of the fair value of 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 beis being amortized over 15 years.

On July 31, 2014, in connection with the Company’s public offering in July 2014, the Company issued warrants to purchase up to 87,719 common shares, with an exercise price of $3.5625 per common share, to the representative of the underwriters of the offering (the “July 2014 Representative Warrants”). These warrants are exercisable at any time, and from time to time, in whole or in part, commencing on July 28, 2015 and expire on July 28, 2019. The fair value of these warrants, using the Black-Scholes option pricing model, on the date of issuance was $42,224. At September 30, 2019, all of the July 2014 Representative Warrants were exercised or expired.

On May 29, 2015, in connection with the Company’s public offering in May 2015, the Company issued warrants to purchase up to 50,750 common shares, with an exercise price of $5.4875 per common share, to the representative of the underwriters of the offering (the “May 2015 Representative Warrants”). These warrants are exercisable at any time, and from time to time, in whole or in part, commencing on May 22, 2016 and expire on May 22, 2020. The fair value of these warrants, using the Black-Scholes option pricing model, on the date of issuance was $54,928. At September 30, 2019, May 2015 Representative Warrants to purchase up to 9,650 common shares were outstanding.

On August 15, 2016, in connection with a public offering of the Company’s common shares, the Company issued warrants to purchase up to 33,612 common shares, with an exercise price of $7.4375 per common share, to the representative of the underwriters of the offering (the “August 2016 Representative Warrants”). The warrants are exercisable at any time, and from time to time, in whole or in part, commencing on August 9, 2017 and expire on August 9, 2021. The fair value of these warrants, using the Black-Scholes option pricing model, on the date of issuance was $47,020. At SeptemberJune 30, 2019,2020 all of the August 2016 Representative Warrants were outstanding.

As a result of the COVID-19 pandemic, the Company may experience difficulties collecting monthly interest on time from its borrowers, property values may decline and certain of its originated loans may need to be extended. For example, two of our long term borrowers requested forbearance agreements, due to the impact of the COVID-19 pandemic, deferring two to three months of interest payments to the scheduled payoff date, and we agreed to accommodate the request. Since the onset of the COVID-19 pandemic, the Company has continued to originate loans as well as continued to service its existing loans, though the Company has observed lower demand for new loans. The Company has also held discussions with its borrowers and they have expressed their general concern about the uncertain economic condition, though these concerns have been partially alleviated due to lowered interest rates. To date, the Company has not been materially impacted by the COVID-19 pandemic and will continue to closely monitor the impact of the COVID-19 pandemic on all aspects of its business. If the COVID-19 pandemic worsens in the geographic areas in which the Company operates, the pandemic could materially affect its financial and operational results.

In accordance with the board approved dividend declared on May 7, 2020, a cash dividend of $0.10 per share in an aggregate amount of $962,685 was paid on July 15, 2020 to all shareholders of record on July 10, 2020.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q. The discussion and analysis 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.

We are a New York-based real estate finance company that specializes in originating, servicing and managing a portfolio of first mortgage loans. We offer short-term, secured, non-banking loans (sometimes referred to as “hard money” loans), which we may renew or extend on, before or after their initial term expires, to real estate investors to fund their acquisition, renovation, rehabilitation or development of residential or commercial properties located in the New York metropolitan area, including New Jersey and Connecticut, and in Florida.

The properties securing the loans are generally classified as residential or commercial real estate and, typically, are not income producing. Each loan is secured by a first mortgage lien on real estate. In addition, each loan is personally guaranteed by the principal(s) of the borrower, which guarantee may be collaterally secured by a pledge of the guarantor’s interest in the borrower. The face amount of the loans we originated in the past seven years ranged from $30,000 to a maximum of $2.5 million. Our lending policy limits the maximum amount of any loan to the lower of (i) 9.9% of the aggregate amount of our loan portfolio (not including the loan under consideration) and (ii) $2.5$3 million. Our loans typically have a maximum initial term of 12 months and bearbearing interest at a fixed rate of 10%9% to 14% per year. In addition, we usually receive origination fees or “points” ranging from 0% to 2% of the original principal amount of the loan as well as other fees relating to underwriting and funding the loan. Interest is always payable monthly, in arrears. In the case of acquisition financing, the principal amount of the loan usually does not exceed 75% of the value of the property (as determined by an independent appraiser) and in the case of construction financing, it is typically up to 80% of construction costs.

Since commencing this business in 2007, we have made over 810approximately 890 loans and never foreclosed on a property. We currently manage approximately 140130 loans. In addition, none of our loans have ever gone into default although sometimes we have renewed or extended our loans to enable the borrower to avoid premature sale or refinancing of the property. When we renew or extend a loan we receive additional “points” and other fees.

Our primary business objective is to grow our loan portfolio while protecting and preserving capital in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term through dividends. We intend to achieve this objective by continuing to selectively originate loans and fund loans secured bycarefully manage our portfolio of first mortgages on residentialmortgage real estate held for investment located in the New York metropolitan area, including New Jersey and Connecticut, and in Florida, and to carefully manage and service our portfolioloans in a manner designed to generate attractive risk-adjusted returns across a variety of market conditions and economic cycles. We believe that currentthe demand for relatively small loans secured by residential and commercial real estate held for investment around the New York metropolitan market dynamics, specificallyremains relatively strong, but weakened due to the COVID-19 pandemic, and that traditional lenders, including banks and other financial institutions, that usually address this market are unable to satisfy this demand. This demand/supply imbalance has created an opportunity for relatively smallnon-bank “hard money” real estate loans, presents significant opportunities forlenders like us to selectively originate high-quality first mortgage loans on attractive terms and we believe that these market conditionsthis condition should persist for a number of years. However, we have observed more intense competition in our industry from both small and large lenders, which has resulted in more liquidity in the real estate markets in the geographic areas in which we operate. We also believe that certain of our competitors will not survive the COVID-19 pandemic.

Since the onset of the COVID-19 pandemic, we have continued to originate loans as well as continued to service our existing loans, though we have observed lower demand for new loans. In addition, we may experience difficulties collecting the monthly interest on time, property values may decline and certain of our originated loans may need to be extended, though to date we have not experienced many borrowers requiring such accommodations. In that regard, two of our long term borrowers requested forbearance agreements, due to the impact of the COVID-19 pandemic, deferring two to three months of interest payments to the scheduled payoff date, and we agreed to accommodate the request. We have also held discussions with our borrowers and they have expressed their general concern about the uncertain economic condition, yet we believe that it’s premature to determine the magnitude of the impact at this point.

We expect the significance of the COVID-19 pandemic, including the extent of its effect on our financial and operational results, to be dictated by, among other things, its duration, the success of efforts to contain it and the impact of actions taken in response. For instance, recent government action to provide substantial financial support to businesses has provided helpful mitigation for us and certain of our borrowers; its ultimate impact, however, is not yet clear. While we are not able at this time to estimate the future impact of the COVID-19 pandemic on our financial and operational results, it could be material.

We have built our business on a foundation of intimate real estate knowledge of the New York metropolitan area the Company operates in,real estate market combined with a disciplined credit and due diligence culture that is designed to protect and preserve capital. We believe that our flexibility and ability to structure loans that addressin terms of meeting the needs of our borrowers without compromising our standards on credit risk, our expertise, our intimate real estate knowledge of the New York metropolitan area the Company operates in,real estate market and our focus on newly originated first mortgage loans, has defined our success until now and should enable us to continue to achieve our objectives.

A principal source of new transactions has been repeat business from prior customers and their referral of new business. We also receive leads for new business from banks, brokers and from a limited amount of advertising. Finally, our Chief Executive Officer also spends a significant portion of his time on new business development. We rely on our own employees, independent legal counsel, and other independent professionals to verify titles and ownership, to file liens and to consummate the transactions. Outside appraisers are used to assist us in evaluating the worth of collateral, when deemed necessary by management. We also use construction inspectors.

For the nine month periodssix months ended SeptemberJune 30, 20192020 and 2018,2019, the total amounts of $38,246,965$21,798,160 and $42,417,500,$24,697,965, respectively, have been lent, offset by collections received from borrowers, under our commercial loans in the amount of $33,375,420$19,455,628 and $29,030,264,$23,622,125, respectively.

At SeptemberJune 30, 2019,2020, we were committed to $7,188,035$6,580,875 in construction loans that can be drawn by the borrowers when certain conditions are met.

To date, we have 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.

We satisfied all of the requirements to be taxed as a REIT and elected to be taxed as a REIT commencing with our taxable year ended December 31, 2014. In order to maintain our qualification for taxation as a REIT and avoid any excise tax on our net taxable income, we are required to distribute each year at least 90% of our REIT taxable income. If we distribute less than 100% of our taxable income (but more than 90%), the undistributed portion will be taxed at the regular corporate income tax rates. As a REIT, we may also be subject to federal excise taxes and minimum state taxes.

Results of Operations

Three Month Period Ended Septembermonths ended June 30, 2019 Compared2020 compared to Three Month Period Ended Septemberthree months ended June 30, 20182019

Revenue

Total revenues for the three month periodmonths ended SeptemberJune 30, 20192020 were approximately $1,917,000$1,741,000 compared to approximately $1,891,000$1,779,000 for the three month periodmonths ended SeptemberJune 30, 2018, an increase2019, a decrease of $26,000,$38,000, or 1.4%2.1%. The increasedecrease in revenue represents an increase in lending operations.was primarily attributable to lower interest rates and origination points charged on loans due to market conditions and intense competition from other lenders, as well as lower demand for new loans resulting from the COVID-19 pandemic. For the three month periodsmonths ended SeptemberJune 30, 2020 and 2019, approximately $1,490,000 and 2018, approximately $1,619,000 and $1,617,000,$1,487,000, respectively, of our revenues were attributable to interest income on the secured commercial loans that we offer to small businesses, and approximately $298,000$251,000 and $275,000,$292,000, respectively, of our revenues were attributable to origination fees on such loans. The loans are principally secured by collateral consisting of real estate and, generally, accompanied by personal guarantees from the principals of the borrowers.

Interest and amortization of debt service costs

Interest and amortization of debt service costs for the three month periodmonths ended SeptemberJune 30, 20192020 were approximately $454,000$326,000 compared to approximately $429,000$388,000 for the three month periodmonths ended SeptemberJune 30, 2018, an increase2019, a decrease of $25,000,$62,000, or 5.8%16.0%. The increase isdecrease was primarily attributable to the use of the Webster Credit Linedecreased interest expense due to lower LIBOR rates (See Note 54 to the financial statements included elsewhere in this quarterly report) in order to support our ability to increase loan originations..

General and administrative expenses

General and administrative expenses for the three month periodmonths ended SeptemberJune 30, 20192020 were approximately $315,000$319,000 compared to approximately $272,000$310,000 for the three month periodmonths ended SeptemberJune 30, 2018,2019, an increase of $43,000$9,000, or 15.8%2.9%. The increase is primarily attributable to increases in payroll, travel, advertising and Board compensation expenses,legal fees as well as in payroll and bank expenses, partially offset by decreases in appraisal, advertising, travel and legal fees.meal expenses.

Net income

Net income for the three month periodmonths ended SeptemberJune 30, 20192020 was approximately $1,150,000$1,097,000 compared to approximately $1,189,000$1,084,000 for the three month periodmonths ended SeptemberJune 30, 2018, a decrease2019, an increase of $39,000,$13,000, or 3.3%1.2%. The decreaseincrease is primarily attributable to the increasedecrease in general and administrative expenses.interest expense, offset by the decrease in revenue.

Nine Month Period Ended SeptemberSix months ended June 30, 2019 Compared2020 compared to Nine Month Period Ended Septembersix months ended June 30, 20182019

Revenue

Total revenues for the nine month periodsix months ended SeptemberJune 30, 20192020 were approximately $5,484,000$3,452,000 compared to approximately $5,224,000$3,567,000 for the nine month periodsix months ended SeptemberJune 30, 2018, an increase2019, a decrease of $260,000,$115,000, or 5.0%3.2%. The increasedecrease in revenue represents an increase in lending operations.was primarily attributable to lower interest rates and origination points charged on loans due to market conditions and intense competition from other lenders, as well as lower demand for new loans resulting from the COVID-19 pandemic. For the nine month periodssix months ended SeptemberJune 30, 20192020 and 2018,2019, revenues of approximately $4,609,000$2,964,000 and $4,469,000,$2,990,000, respectively, were attributable to interest income on the secured commercial loans that we offer to small businesses, and approximately $875,000$488,000 and $755,000,$577,000, respectively, of our revenues were attributable to origination fees on such loans. The loans are principally secured by collateral consisting of real estate and, generally, accompanied by personal guarantees from the principals of the borrowers.

Interest and amortization of debt service costs

Interest and amortization of debt service costs for the nine month periodsix months ended SeptemberJune 30, 20192020 were approximately $1,221,000$679,000 compared to approximately $1,240,000$766,000 for the nine month periodsix months ended SeptemberJune 30, 2018,2019, a decrease of $19,000,$87,000, or 1.5%11.4%. The decrease iswas primarily attributable to the lowerdecreased interest expense on the Webster Credit Linedue to lower LIBOR rates (See Note 54 to the financial statements included elsewhere in this quarterly report) resulting from lower LIBOR rates..

General and administrative expenses

General and administrative expenses for the nine month periodsix months ended SeptemberJune 30, 20192020 were approximately $913,000$664,000 compared to approximately $863,000$598,000 for the nine month periodsix months ended SeptemberJune 30, 2018,2019, an increase of $50,000,$66,000, or 5.8%11.0%. The increase is primarily attributable to increases in legal fees, in payroll insurance, advertising and Boardbank expenses and in compensation expenses, offset by decreasesto members of our board of directors, as well as a special bonus paid to our Chief Financial Officer in travel and meals expenses.the first quarter of 2020.

Net Incomeincome

Net income for the nine month periodsix months ended SeptemberJune 30, 20192020 was approximately $3,355,000$2,113,000 compared to approximately $3,119,000$2,205,000 for the nine month periodsix months ended SeptemberJune 30, 2018, an increase2019, a decrease of $236,000,$92,000, or 7.6%4.2%. The increaseThis decrease is primarily attributable to the increasedecrease in revenue offset byand the increase in general and administrative expenses.expenses, offset by the decrease in interest expense.

Liquidity and Capital Resources

At SeptemberJune 30, 2019,2020, we had cash of approximately $126,000$194,000 compared to cash of approximately $204,000$118,000 at December 31, 2018 (not including restricted cash, which mainly represents collections received, pending check clearance, from the Company’s commercial loans and is primarily dedicated to the reduction of the Webster Credit Line).2019.

For the nine month periodsix months ended SeptemberJune 30, 2019,2020, net cash provided by operating activities was approximately $3,224,000,$1,988,000, compared to approximately $3,236,000$2,059,000 for the nine month periodsix months ended SeptemberJune 30, 2018.2019. The decrease in net cash provided by operating activities primarily resulted from an increasea decrease in net income as well as increases in interest receivable on loans and a decrease in deferred origination fees, offset by an increase in net income.other assets.

For the nine month periodsix months ended SeptemberJune 30, 2019,2020, net cash used in investing activities was approximately $4,872,000,$2,358,000, compared to approximately $13,387,000$1,076,000 for the nine month periodsix months ended SeptemberJune 30, 2018.2019. Net cash used in investing activities for the nine month periodsix months ended SeptemberJune 30, 20192020 mainly consisted of the issuance of commercial loans of approximately $38,247,000,$21,798,000 and the release of loan holdback of $15,000, offset by collection of our commercial loans of approximately $33,375,000.$19,456,000. In the period ended SeptemberJune 30, 2018,2019, net cash used in investing activities consisted of the issuance of commercial loans of approximately $42,418,000,$24,698,000, offset by collection of our commercial loans of approximately $29,030,000.$23,622,000.

For the nine month periodsix months ended SeptemberJune 30, 2019,2020, net cash provided by financing activities was approximately $1,756,000,$446,000, compared to net cash used in financing activities of approximately $11,875,000$1,212,000 for the nine month periodsix months ended SeptemberJune 30, 2018.2019. Net cash provided by financing activities for the nine month periodsix months ended SeptemberJune 30, 20192020 reflects the net proceeds from the Webster Credit Line of approximately $5,242,000 and proceeds from the exercise of optionsan aggregate of approximately $20,000,$2,843,000, offset by the dividend payments of approximately $3,477,000$2,219,000, the purchase of treasury shares of approximately $152,000 and deferred financing costs of approximately $27,000. Net cash used in financing activities for the six months ended June 30, 2019 reflects the dividend payments of approximately $2,318,000 and the purchase of treasury shares of approximately $29,000. Net cash provided$29,000, offset by financing activities for the nine month period ended September 30, 2018 reflects the net proceeds from the Webster Credit Line of approximately $4,803,000, the net proceeds from the public offering, as described below,an aggregate of approximately $9,883,000$1,116,000 and the proceeds from the exercise of warrants of approximately $49,000, offset by the dividend payments of approximately $2,839,000 and deferred financing costsoptions of approximately $20,000.

We maintain the Webster Credit Line which currently provides us with a credit line of $25$32.5 million in the aggregate secured by assignments of mortgages and other collateral. On August 8, 2017, we entered into the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement established the Webster Credit Line.

Effective July 11, 2018, we entered into a Waiver and Amendment No. 1 to the Amended and Restated Credit Agreement (“Amendment II”No. 1”) with Webster, Flushing and Mr. Ran, as guarantor. In conjunction with the execution of Amendment II,No. 1, we also entered into an Amended and Restated Revolving Credit Note in the principal aggregate amount of $10,000,000 with Flushing (the “Amended Flushing Note”) and a Second Amended and Restated Fee Letter with Webster and Flushing, each dated July 11, 2018. Pursuant to the terms of Amendment II,No. 1, the Company’s existing Webster Credit Line was increased by $5 million to $25 million in the aggregate. In addition, the interest rates relating to Webster Credit Line were amended such that the interest rates now equal (i) LIBOR plus a premium, which rate aggregated approximately 6.02%4.16%, including a 0.5% agency fee, as of SeptemberJune 30, 2019,2020, or (ii) a Base Rate (as defined in the Amended and Restated Credit Agreement) plus 2.25% plus a 0.5% agency fee, as chosen by the Company for each drawdown. Amendment IINo. 1 also permits the Company to repurchase, redeem or otherwise retire its equity securities in an amount not to exceed ten percent of our annual net income from the prior fiscal year. In addition, Mr. Ran has provided a personal guaranty to the Webster Credit Line, which shall not exceed the sum of $500,000 plus any costs relating to the enforcement of the personal guaranty. Furthermore, on December 31, 2019, we entered into Amendment No. 2 to the Amended and Restated Credit and Security Agreement (“Amendment No. 2”) with Webster and Flushing to amend certain required fixed charge coverage requirements.

On February 25, 2020, we entered into Amendment No. 3 to the Amended and Restated Credit and Security Agreement (“Amendment No. 3”) with Webster, Flushing, Mizrahi, and Mr. Ran, as guarantor. In conjunction with the execution of Amendment No. 3, we also entered into an Amended and Restated Revolving Credit Note in the principal aggregate amount of $7,500,000 with Mizrahi and a Third Amended and Restated Fee Letter with Webster each dated February 25, 2020. Pursuant to the terms of Amendment No. 3, our existing Webster Credit Line was increased by $7.5 million to $32.5 million in the aggregate and the term of the Webster Credit Line was extended to February 28, 2023. Amendment No. 3 also provides that the Company may issue up to $20 million in bonds through its subsidiary, of which not more than $10 million of such notes may be secured by mortgage notes receivable, and provided that the terms and conditions of such bonds are approved by Webster, subject to its reasonable discretion.

We were in compliance with all covenants of the Webster Credit Line, as amended, as of SeptemberJune 30, 2019. The Company received a one-time waiver by Webster for the need by the Company to comply with the Fixed Charge Ratio (as defined in the Webster Credit Line) provision as of September2020. At June 30, 2019. At September 30, 2019,2020, the outstanding amount under the WebsterAmended and Restated Credit LineAgreement was $21,864,042.$18,076,228. The interest rate on the amount outstanding fluctuates daily. The rate, including a 0.5% Agency Fee,agency fee, at SeptemberJune 30, 2019,2020 was approximately 6.02%4.16%.

On July 24, 2018, we completed a public offering of 1,428,572 common shares. In addition, the underwriter partially exercised its over-allotment option for an additional 117,214 common shares. The gross proceeds from the offering, including the partial exercise of the over-allotment option, were approximately $10.8 million and the net proceeds were approximately $9.9 million, after deducting our underwriting discounts and commissions and offering expenses.

On November 1, 2018,February 26, 2020, our Board of Directors authorized a share buy back program, pursuant to which we may, from time to time, purchase up to 100,000 shares of our common shares (the “Share Buy Back Program”). The Share Buy Back Programshares. This program does not obligate the Company to purchase any shares and expires on October 31, 2019.February 25, 2021. The authorization for the Share Buy Back Programprogram is able to be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time. As of SeptemberJune 30, 2019, we have2020, the Company has purchased 13,112 sharesa total of the Company’s31,999 common shares for an aggregate of $78,197 pursuant to the Share Buy Back Program.share buy back program, at an aggregate cost of approximately $152,000.

We anticipate that our current cash balances (which include the proceeds of our 2018 public offering) and the Amended and Restated Credit Agreement, as described above, together with our cash flows from operations will be sufficient to fund our operations for the next 12 months. In addition, from time to time, we receive short term unsecured loans from our executive officers and others in order to provide us with the flexibility necessary to maintain a steady deployment of capital.

As a result of the COVID-19 pandemic, we have experienced a slow down in the deployment of capital and lower demand for new loans. In addition, two of our long-term borrowers requested forbearance agreements, due to the impact of the COVID-19 pandemic, deferring two to three months of interest payments to the scheduled payoff date, and we agreed to accommodate the request. However, to date, we expecthave not been materially impacted by the COVID-19 pandemic and have not experienced any material disruptions in our working capital requirements to increase over the next 12 months as webusiness operations. We will continue to strive for growth.closely monitor the impact of the COVID-19 pandemic on all aspects of our business. If the COVID-19 pandemic worsens in the New York area in which we operate, the pandemic could materially affect our financial and operational results.

Off-Balance Sheet Arrangements

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.

Changes to Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required by this Item.

Item 4. CONTROLS AND PROCEDURES

(a) Evaluation and Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of SeptemberJune 30, 20192020 (the “Evaluation Date”). Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) are accumulated and communicated to our management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the fiscal quarter ended SeptemberJune 30, 20192020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1A. RISK FACTORS

Other than the addition of the text below, there have been no material changes from risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K. See the discussion of the Company’s risk factors under Part I, Item 1A in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The COVID-19 pandemic may adversely affect our business.

In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues to spread globally including in the United States. As a result of the COVID-19 pandemic, we have experienced a slow down in the deployment of capital and lower demand for new loans. In addition, two of our long term borrowers requested forbearance agreements, due to the impact of the COVID-19 pandemic, deferring two to three months of interest payments to the scheduled payoff date, and we agreed to accommodate the request. To date, we have not been materially impacted by the COVID-19 pandemic, but we will continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. If the COVID-19 pandemic worsens in the New York area in which we operate, the pandemic could materially affect our financial and operational results.

The extent to which the coronavirus impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. While the New York area in which we primarily operate has begun to roll back its “stay-at-home” orders and reopen certain businesses, the current outlook remains uncertain and it is possible the spread of COVID-19 may re-emerge in the New York area. We expect the significance of the COVID-19 pandemic, including the extent of its effect on our financial and operational results, to be dictated by, among other things, its duration, the success of efforts to contain it and the impact of actions taken in response. For instance, recent government action to provide substantial financial support to businesses could provide helpful mitigation for us and certain of our borrowers; its ultimate impact, however, is not yet clear. While we are not able at this time to estimate the future impact of the COVID-19 pandemic on our financial and operational results, it could be material.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On February 26, 2020, our Board of Directors authorized a share buy back program, pursuant to which we may, from time to time, purchase up to 100,000 of our common shares. This program does not obligate the Company to purchase any shares and expires on February 25, 2021. The authorization for the program is able to be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time.

As set forth in the table below, during the quarter ended June 30, 2020, the Company repurchased 5,390 shares of the Company’s common shares under the stock buy-back program at an aggregate cost of $20,835.

ISSUER PURCHASES OF EQUITY SECURITIES

Item 6. EXHIBITS

* Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.