Manhattan Bridge Capital Annual Report 2020

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FY2020 Annual Report · Manhattan Bridge Capital

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A N N U A L
R E P O R T

DECEMBER 31, 2020

N Y

N e c k ,

Cutter Mill Road, Suite 205
60
1 1 0 2 1
G r e a t
516-444-3400
TEL:
FAX:
516-444-3404
www.manhattanbridgecapital.com
NASDAQ:LOAN

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Fellow Shareholders,

I hope that you and your loved ones are well and safe. Who would have imagined that this crisis will
still be dominating our lives in 2021? The scale of challenges in 2020 was unprecedented and it was a
reality test for our mechanisms and system; yet, due to our conservative underwriting and disciplined
loan policies, we prevailed and continued delivering an impressive performance, on-time cash
dividends and increased shareholders’ value.

Our exceptionally low debt-to-equity ratio proved once again to be beneficial in facing challenges in
rough times. The low cost of money relative to many of our peers is possible due to the impressive
track record of no defaults ever, and the outstanding personal commitment of our management. The
two most significant examples for that are my personal guaranty on the company’s $32,500,000 line
of credit, and the occasional personal stock purchases by our directors and officers. We also control our
expenses and run our operations efficiently and therefore demonstrated a 13.2% return on equity and
a 7.1% return on assets in 2020.

Our board of directors is highly qualified, actively involved and frequently updated. Our directors have
approved stock buy-back programs a number of times since our IPO in 1999. We believe that the best
investment is often the investment in our own company, and have taken opportunities to buy back
shares at a dip, when markets were experiencing panic and a significant drop in prices. This practice
helped to stabilize the stock price and enhanced shareholders’ value.

As an essential business, we continued operating during the shutdown. While our hard-working team
worked partly from home and partly from the office, we made sure to service our loans and borrowers
flawlessly and continued generating new deal flow. We are now completely back to in-office work, and
of course, religiously complying with all safety laws and requirements.

While future economic conditions remain uncertain, and as inflation or a recession may occur, we, as
always, are committed to responsibly deploying our funds to what we believe to be low-risk,
short-term real estate finance opportunities led by professional and responsible real estate investors and
personal guarantors.

I believe that the beginning of 2021 reflects buds of optimism. Deal flow is now almost back to
normal. Most of our loans are secured by first mortgages on 1-4 family houses located outside of
Manhattan, an asset that has actually appreciated in value recently.

As the founder and the largest shareholder of the company, I would like to express my appreciation for
your trust and your investment in the company. Be assured that I align the interest of each and every
one of you with my own.

Stay Safe,

Assaf Ran
Chairman & CEO

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FORWARD-LOOKING STATEMENTS

This Annual Report, and letter and the statements of our representatives related thereto contain or
may contain forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Statements that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing, words such as
“plan,” “project,” “potential,” “seek,” “may,” “will,” “expect,” “believe,” “anticipate,” “intend,”
“could,” “estimate,” or “continue” are intended to identify forward-looking statements. For
example, when we discuss the belief that our exceptionally low debt-to-equity ratio proved once
again to be beneficial in facing challenges in rough times, that the low cost of money relative to
many of our peers is possible due to the impressive track record of no defaults ever, and the
outstanding personal commitment of our management, that deal flow is almost back to normal and
the belief that the beginning of 2021 reflects buds of optimism, we are using forward-looking
statements. Readers are cautioned that certain important factors may affect the Company’s actual
results and could cause such results to differ materially from any forward-looking statements that
may be made in this news release. 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,
including but not limited to the following: (i) our loan origination activities, revenues and profits
are limited by available funds; (ii) we operate in a highly competitive market and competition may
limit our ability to originate loans with favorable interest rates; (iii) our Chief Executive Officer is
critical to our business and our future success may depend on our ability to retain him; (iv) if we
overestimate the yields on our loans or incorrectly value the collateral securing the loan, we may
experience losses; (v) we may be subject to “lender liability” claims; (vi) our due diligence may
not uncover all of a borrower’s liabilities or other risks to its business; (vii) borrower
concentration could lead to significant losses; (viii) we may choose to make distributions in our
own stock, in which case you may be required to pay income taxes in excess of the cash dividends
you receive and (ix) if the effect of the COVID-19 pandemic on our business is greater than
anticipated. The risk factors contained in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2020 filed with the Securities and Exchange Commission identify important
factors that could cause such differences. These forward-looking statements speak only as of the
date of this letter, and we caution potential investors not to place undue reliance on such
statements. We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise, except as required by
applicable law.

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General

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 improvement of properties located in the New York metropolitan area, including New
Jersey and Connecticut, and in Florida. We are organized and conduct our operations to qualify as a real estate investment trust
for federal income tax purposes (“REIT”). We have qualified for taxation as a REIT beginning with our taxable year ended
December 31, 2014. For reasons discussed below, our restated certificate of incorporation restricts the acquisition and owner-
ship of our capital stock to 4.0% of our outstanding shares of capital stock, by value or number of shares, whichever is more
restrictive.

In order to maintain our qualification for taxation as a REIT, we are required to distribute at least 90% of our REIT
taxable income to our shareholders each year. To the extent we distribute less than 100% of our taxable income to our
shareholders (but more than 90%) we will maintain our qualification for taxation as a REIT, but the undistributed portion will
be subject to regular corporate income taxes. As a REIT, we may also be subject to federal excise taxes and minimum state taxes.
We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the
Investment Company Act of 1940, as amended (the “Investment Company Act”). In addition, in order for us to qualify for
taxation as a REIT, not more than 50% in value of our outstanding common shares may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Internal Revenue Code of 1986, as amended (the “Code”) to include certain entities) at
any time during the last half of each taxable year, and at least 100 persons must beneficially own our stock during at least 335
days of a taxable year of 12 months, or during a proportionate portion of a shorter taxable year. To help ensure that we meet the
tests, our restated certificate of incorporation restricts the acquisition and ownership of our capital stock. The ownership
limitation is fixed at 4.0% of our outstanding shares of capital stock, by value or number of shares, whichever is more
restrictive.

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) $3 million. Our loans typically have a maximum initial term of 12
months and bear interest at a fixed rate of 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 our business in 2007, we have never foreclosed on a property and none of our loans have ever gone
into default, although sometimes we have renewed or extended the term of a loan to enable the borrower to avoid premature sale
or refinancing of the property. For example, during the second quarter of 2020, 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
payoff. We agreed to accommodate the requests and since the date of the forbearance agreements, those borrowers have timely
paid their monthly interest. When we renew or extend a loan, we generally receive additional “points” and other fees.

Our executive officers are experienced in hard money lending under various economic and market conditions. Loans
are originated, underwritten and structured by our Chief Executive Officer, assisted by our Chief Financial Officer, and then
managed and serviced principally by our Chief Financial Officer and our internal team. 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
real estate brokers and mortgage brokers and a limited amount of advertising.

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manage and service our portfolio in a manner designed to generate attractive risk-adjusted returns across a variety of market
conditions and economic cycles. We believe that current market dynamics specifically the demand/supply imbalance for
relatively small real estate loans, presents opportunities for us to selectively originate high-quality first mortgage loans and we
believe that these market conditions should persist for a number of years. We have built our business on a foundation of intimate
knowledge of the New York metropolitan area 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 address the needs
of our borrowers without compromising our standards on credit risk, our expertise, our intimate knowledge of the New York
metropolitan area 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.

The Market Opportunity

Real estate investment is a capital-intensive business that relies heavily on debt capital to acquire, develop, improve,
construct, renovate and maintain properties. We believe that the demand for relatively small loans to acquire, renovate or
improve residential real estate held around the New York metropolitan area, including New Jersey and Connecticut, and in
Florida markets presents a compelling opportunity to generate attractive returns for an established, well-financed, non-bank
lender like us. We have competed successfully in these markets notwithstanding the fact that many traditional lenders, such as
banks and other institutional lenders, also service this market. Our primary competitive advantage is our ability to approve and
fund loans quickly and efficiently. In this environment, characterized by a supply-demand imbalance for financing and
increasing asset values, we believe we are well positioned to capitalize and profit from these industry trends.

We believe there is a significant market opportunity for a well-capitalized “hard money” real estate finance company
to originate attractively priced loans with strong credit fundamentals. Particularly around the New York metropolitan area where
real estate values are relatively stable and substandard properties are being improved, rehabilitated and renovated, we believe
there are many opportunities for a “hard money” lender providing capital for these purposes to small scale developers. We
further believe that our flexibility to structure loans to suit the particular needs of our borrowers and our ability to close
quickly make us an attractive alternative to banks and other large institutional lenders for small real estate developers and
investors.

Our Business and Growth Strategies

Our objective is to protect and preserve capital in a manner that provides for attractive risk-adjusted returns to our
shareholders over the long term, principally through dividends. We intend to achieve this objective by continuing to focus
exclusively on selectively originating, servicing and managing a portfolio of short-term real estate loans secured by first
mortgages on real estate located in the New York metropolitan area, including New Jersey and Connecticut, and in Florida, that
are designed to generate attractive risk-adjusted returns across a variety of market conditions and economic cycles. We believe
that our ability to react quickly to the needs of borrowers, our flexibility in terms of structuring loans to meet the needs of
borrowers, our intimate knowledge of the New York metropolitan area real estate market, our expertise in “hard money”
lending and our focus on newly originated first mortgage loans, should enable us to achieve this objective. Nevertheless, we will
remain flexible in order to take advantage of other real estate related opportunities that may arise from time to time, whether
they relate to the mortgage market or, if we determine that it is in our best interest, to make direct or indirect investments in real
estate.

Our strategy to achieve our objective includes the following:

•

capitalize on opportunities created by the long-term structural changes in the real estate lending market and
the continuing demand for liquidity in the real estate market;

take advantage of the prevailing economic environment as well as economic, political and social trends that
may impact real estate lending currently and in the future as well as the outlook for real estate in general and
particular asset classes;

remain flexible in order to capitalize on changing sets of investment opportunities that may be present in the
various points of an economic cycle; and

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•

operate so as to qualify for taxation as a REIT and for an exemption from registration under the Investment
Company Act.

In furtherance of these strategies, we have a credit line agreement with Webster Business Credit Corporation
(“Mizrahi”) whereby Webster

and Mizrahi Tefahot Bank Ltd.

(“Webster”), Flushing Bank (“Flushing”),
Flushing and Mizrahi have extended us a $32.5 million credit line.

Our Competitive Strengths

We believe our competitive strengths include:

•

Experienced management team. Our management team has successfully originated and serviced a portfolio
of real estate mortgage loans generating attractive annual returns under varying economic and real estate mar
ket conditions. We expect that the experience of our management team will provide us with the ability to
effectively deploy ourcapital in a manner that we believe will provide for attractive risk-adjusted returns but
with a focus on capital preservation and protection.

Long-standing relationships. A significant portion of our business comes from repeat customers with whom
we have long-standing relationships. These customers are also a referral source for new borrowers. As long as
these customers remain active real estate investors they provide us with an advantage in securing new
business and help us maintain a pipeline to attractive new opportunities that may not be available to many of
our competitors or to the general market.

Knowledge of the market. Our intimate knowledge of the real estate markets in the geographic areas in which
we operate enhances our ability to identify attractive opportunities and helps distinguish us from many of our
competitors.

Disciplined lending. We seek to maximize our risk-adjusted returns, and preserve and protect capital, through
our disciplined and credit-based approach. We utilize rigorous underwriting and loan closing procedures that
include numerous checks and balances to evaluate the risks and merits of each potential transaction. We seek
to protect and preserve capital by carefully evaluating the condition of the property, the location of the
property, and the creditworthiness of the guarantors.

Vertically-integrated loan origination platform. We manage and control the loan process from origination
through closing with our own personnel and independent legal counsel and appraisers, with whom we have
long relationships, who together constitute a highly experienced team in credit evaluation, underwriting and
loan structuring. We also believe that our procedures and experience allow us to quickly and efficiently
execute opportunities we deem desirable.

Structuring flexibility. As a relatively small, non-bank real estate lender, we can move quickly and have much
more flexibility than traditional lenders to structure loans to suit the needs of our clients. Our ability to
customize financing structures to meet borrowers’ needs is one of our key business strengths.

No legacy issues. Unlike many of our competitors, we are not burdened by distressed legacy real estate assets.
We do not have a legacy portfolio of lower-return or problem loans that could potentially dilute the attractive
returns we believe are available in the current
liquidity-challenged environment and/or distract and
monopolize our management team’s time and attention. We do not have any adverse credit exposure to, and
we do not anticipate that our performance will be negatively impacted by, previously purchased assets.

Our Real Estate Lending Activities

Our real estate lending activities involve originating, funding, servicing and managing short-term loans (i.e.: loans with
an initial term of not more than one year), secured by first mortgage liens on real estate property located in the New York
metropolitan area, including New Jersey and Connecticut, and in Florida, held for investment or resale. Generally, borrowers use
4

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the proceeds from our loans for one of three purposes: (i) to acquire and renovate existing residential (single, one or two
family) real estate properties; (ii) to acquire vacant real estate and construct residential real properties; and (iii) to purchase and
hold income producing properties. Our mortgage loans are structured to fit the needs and business plans of the borrowers.
Revenue is generated primarily from the interest borrowers pay on our loans and, to a lesser extent, loan fee income generated
on the origination and extension of loans.

Most of our loans are funded in full at the closing. However, our loan portfolio includes a number of construction loans,
which are only partially funded at closing. At December 31, 2019, our unfunded commitment was approximately $5.07 million.
At December 31, 2020, our unfunded commitment was approximately $4.60 million. Advances under construction loans are
funded against requests supported by all required documentation as and when needed to pay contractors and other costs of
construction. In the case of construction loans, the borrower will either deliver multiple notes or one global note for the entire
commitment. In either case, interest only accrues on the funded portion of the loan.

In general, our strategy is to service and manage the loans we originate until they are paid. However, there have been
a few instances where we have either used loans as collateral, or sold participating interests in loans. At December 31, 2020,
most of our loans are secured by properties located around the New York metropolitan area. Most of the properties we finance
are residential, although on occasion they are classified as commercial. However, in all instances the properties are held only for
investment by the borrowers. Most of these properties do not generate any cash flow.

The typical terms of our loans are as follows:

Principal amount – In the last seven years, a minimum of $30,000 to a maximum of $2.5 million. Our lending policy
limits the maximum loan amount to the lower of (i) 9.9% of the aggregate amount of our loan portfolio (not including the loan
under consideration) and (ii) $3 million.

Loan-to-Value Ratio - Up to 75%, and/or up to 80% of construction costs.

Interest rate - Most of the loans in our portfolio have a fixed rate of typically 9% to 14%.

Term - Generally, one year with early termination in the event of a sale of the property or a refinancing. We entertain

requests for granting extensions under certain conditions.

Prepayments - Borrower may prepay the loan at any time beginning three months after the funding date and in some

instances, we waive prepayment fees.

Covenants - To timely pay all interest on the loan and to maintain hazard insurance with respect to the property.

Events of default - Include: (i) failure to comply with the loan terms; (ii) breach of a covenant.

Payment terms - Interest only is payable monthly in arrears. Principal is due in a “balloon” payment at the maturity

date.

Escrow - None.

Reserves - None.

Security - The loan is evidenced by a promissory note, which is secured by a first mortgage lien on the real
property owned by the borrower. In addition, each loan is guaranteed by the principals of the borrower, which may be
collaterally secured by a pledge of the guarantor’s interest in the borrower.

Fees and Expenses - Borrowers generally pay an origination fee equal to 0% to 2% of the loan amount. If we agree to
extend the term of the loan, we usually collect the same origination fee we charged on the initial funding of the loan. In
addition, borrowers in some cases also pay a processing fee, wire fee, bounced check fee and, in the case of construction loans,
check requisition fee for each draw from the loan. Finally, the borrower pays all expenses relating to obtaining the loan
including the cost of a property appraisal, and all title, recording fees and legal fees.

Operating Data

The decline in interest rates has adversely impacted our income and earnings. Recent market conditions, including
interest rate reductions, intense competition and slowing real estate markets in the areas we operate, have caused a reduction in
our margins.

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Our loan portfolio

The following table highlights certain information regarding our real estate lending activities for the periods indicated:

($ in thousands)
Loans originated
Loans repaid
Mortgage lending revenues
Mortgage lending expenses
Number of loans outstanding
Principal amount of loans earning interest
Average outstanding loan balance
Percent of loans secured by New York metropolitan area properties,
including in New Jersey and Connecticut (1)
Weighted average contractual interest rate
Weighted average term to maturity (in months) (2)
(1) Calculated based on the number of loans.
(2) Without giving effect to extension options.

Year Ended December 31,

2020
$ 43,719
$ 39,136
7,006
$
1,362
$
128
$ 58,098
454
$

2019
$ 48,054
$ 49,420
$ 7,340
$ 1,639
135
$ 53,485
396
$

97.66%
10.33%
4.73

99.26%
10.91%
5.21

At December 31, 2020 and 2019, no single loan, borrower or group of affiliated borrowers accounted for more than

10% of our loan portfolio.

The following table sets forth information regarding the types of properties securing our mortgage loans outstanding at

December 31, 2020 and 2019, and the interest earned in each category (dollars in thousands):

Number of
Loans
120
4
4
128

Residential
Commercial
Mixed Use
Total

2020
Interest
Earned
$3,924
168
118
$4,210

Percentage
93%
4%
3%
100%

Number of
Loans
123
6
6
135

2019
Interest
Earned
$3,252
187
269
$3,708

Percentage
88%
5%
7%
100%

Our Origination Process and Underwriting Criteria

We primarily rely on our relationships with existing and former borrowers, real estate investors, real estate brokers, loan
initiators, and mortgage brokers to originate loans. Many of our borrowers are “repeat customers.” When underwriting a loan,
the primary focus of our analysis is the value of a property and the credit worthiness of the borrower and its principals. Prior to
making a final decision on a loan application we conduct extensive due diligence of the borrower and its principals. In terms of
the property, we require an assessment report and evaluation. We also order title, lien and judgment searches. In most cases, we
will also make an on-site visit to evaluate not only the property but the neighborhood in which it is located. Finally, we analyze
and assess financial and operational data provided by the borrower relating to its operation and maintenance of the property. In
terms of the borrower and its principals, we usually obtain third party credit reports from one of the major credit reporting
services as well as personal financial information provided by the borrower and its principals. We analyze all this information
carefully prior to making a final determination. Ultimately, our decision is based on our conclusions regarding the value of the
property, which takes into account factors such as the neighborhood in which the property is located, the current use and
potential alternative use of the property, current and potential net income from the property, the local market, sales information
of comparable properties, existing zoning regulations, the creditworthiness of the borrower and its principals and their
experience in real estate ownership, construction, development and management. In conducting our due diligence we rely, in
part, on third party professionals and experts including appraisers, engineers, title insurers and attorneys.

Before a loan commitment is issued, the loan must be reviewed and approved by our Chief Executive Officer. Our loan
commitments are generally issued subject to receipt by us of title documentation and title report, in a form satisfactory to us, for
the underlying property. We require a personal guarantee from the principal or principals of the borrower.

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Our Current Financing Strategies

Our financing strategies are critical to the success and growth of our business. Our financing strategies at this time are
limited to equity and debt offerings, as well as lines of credit from banks. Our principal capital raising transactions have
consisted of the following:

Credit line. Currently, we have a credit line with Webster, Flushing, and Mizrahi pursuant to which we are eligible to
borrow up to $32.5 million against assignments of mortgages and other collateral (the “Webster Credit Line”), as described in
“Liquidity and Capital Resources” below. The current interest rates under the Webster Credit Line equal (i) LIBOR plus a
premium, which rate aggregated 4.14%, including a 0.5% agency fee, as of December 31, 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. (See Note 5 to the financial statements included elsewhere in this Report.)

The following table shows our capitalization, including our financing arrangements, and our loan portfolio as of

December 31, 2020:

Capitalization ($ in thousands):

Debt:
Line of credit
Senior secured notes (net of deferred financing costs of $397)
Total debt
Other liabilities
Capital (equity)
Total sources of capital

Assets:
Loans
Other assets
Total assets

20,309
5,603
25,912
1,967
31,964
59,843

58,098
1,745
59,843

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Competition

The real estate finance market around the New York metropolitan area is highly competitive. We face competition for
lending and investment opportunities from a variety of institutional lenders and investors and many other market participants,
including specialty finance companies, mortgage/other REITs, commercial banks and thrift institutions, investment banks,
insurance companies, hedge funds and other financial institutions as well as private equity funds, family offices and high net
worth individuals. Many of these competitors enjoy competitive advantages over us, including greater name recognition,
established lending relationships with customers, financial resources, and access to capital. In addition, due to market conditions
and intense competition in the market, we have begun to charge our customers lower interest rates and origination fees charged
on loans, which has resulted in our reduced revenues in 2020. We have also seen a lower demand of new loans resulting from
the COVID-19 pandemic.

Notwithstanding the intense competition and some of our competitive disadvantages, we believe we have carved a niche
for ourselves among small real estate developers, owners and contractors throughout the New York metropolitan area because
of our ability to structure each loan to suit the needs of each individual borrower and our ability to act quickly. In addition, we
believe we have developed a reputation among these borrowers as offering reasonable terms and providing outstanding customer
service. We believe our future success will depend on our ability to maintain and capitalize on our existing relationships with
borrowers and brokers and to expand our borrower base by continuing to offer attractive loan products, remain competitive in
pricing and terms, and provide superior service.

In addition, we have also begun operating in the New Jersey, Connecticut and Florida markets.
As we have not operated in those markets for an extended period of time, we have faced competition from more established
lenders, as well as some smaller lenders, in those markets.

Sales and Marketing

We do not engage any third parties for sales and marketing. Rather, we rely on our internal team to generate lending
opportunities as well as referrals from existing or former borrowers, brokers and bankers and advertising to generate lending
opportunities. A principal source of new transactions has been repeat business from prior customers and their referral of new
leads.

Intellectual Property

Our business does not depend on exploiting or leveraging any intellectual property rights. To the extent we own any
rights to 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 including “Manhattan Bridge Capital”.

The protective steps we have taken may not 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

As of December 31, 2020, we employed five employees. In addition, during 2020 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 management in evaluating the worth of collateral, when deemed necessary by management. We also used
construction inspectors as well as mortgage brokers and deal initiators.

Regulation

Our operations are subject, in certain instances, to supervision and regulation by state and federal governmental
authorities and may be subject to various laws and judicial and administrative decisions imposing various requirements and
restrictions. In addition, we may rely on exemptions from various requirements of the Securities Act of 1933, as amended (the

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“Securities Act”), the Exchange Act, the Investment Company Act and ERISA. These exemptions are sometimes highly
complex and may in certain circumstances depend on compliance by third-parties who we do not control.

Regulation of Commercial Real Estate Lending Activities

Although most states do not regulate commercial finance, certain states impose limitations on interest rates and other
charges and on certain collection practices and creditor remedies, and require licensing of lenders and financiers and adequate
disclosure of certain contract terms. We also are required to comply with certain provisions of, among other statutes and
regulations, certain provisions of the Equal Credit Opportunity Act that are applicable to commercial loans, The USA PATRIOT
Act, regulations promulgated by the Office of Foreign Asset Control and federal and state securities laws and regulations.

Investment Company Act Exemption

Although we reserve the right to modify our business methods at any time, we are not currently required to register as
an investment company under the Investment Company Act. However, we cannot assure you that our business strategy will not
evolve over time in a manner that could subject us to the registration requirements of the Investment Company Act.

Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself
out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities.
Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to
engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire
investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. Government
securities and cash items) on an unconsolidated basis, which we refer to as the 40% test.

We rely on the exception set forth in Section 3(c)(5)(C) of the Investment Company Act which excludes from the
definition of investment company “[a]ny person who is not engaged in the business of issuing redeemable securities,
face-amount certificates of the installment type or periodic payment plan certificates, and who is primarily engaged in one or
more of the following businesses... (C) purchasing or otherwise acquiring mortgages and other liens on and interests in real
estate.” This exception generally requires that at least 55% of an entity’s assets be comprised of mortgages and other liens on
and interests in real estate, also known as “qualifying interests,” and at least another 25% of the entity’s assets must be
comprised of real estate-type interests reduced by any amount of qualifying interests that the entity holds in excess of the 55%
minimum limit (with no more than 20% of the entity’s assets comprised of miscellaneous assets). At the present time, we
qualify for the exception under this section and our current intention is to continue to focus on originating short term loans
secured by first mortgages on real property. However, if, in the future, we do acquire non-real estate assets without the
acquisition of substantial real estate assets, we may be deemed to be an “investment company” and be required to register as
such under the Investment Company Act, which could have a material adverse effect on us.

If we were required to register as an investment company under the Investment Company Act, we would become
subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management,
operations, transactions with affiliated persons (as defined in the Investment Company Act), portfolio composition, including
restrictions with respect to diversification and industry concentration, and other matters.

Qualification for exclusion from the definition of an investment company under the Investment Company Act will limit
our ability to make certain investments. In addition, complying with the tests for such exclusion could restrict the time at which
we can acquire and sell assets.

Environmental Laws

Our borrowers, who own properties, may be subject to various environmental laws of federal, state and local
governments. To the extent that an owner of a property underlying one of our debt instruments becomes liable for removal costs,
the ability of the owner to make payments to us may be reduced, which in turn may adversely affect the value of the relevant
mortgage asset held by us and our ability to make distributions to our shareholders. To date, our borrowers’ compliance with
existing laws has not had a material adverse effect on our earnings and we do not have reason to believe it will have such an
impact in the future. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws
or regulations on the properties owned by our borrowers.

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Business

Properties

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, as amended, that expires November 30, 2027. The current monthly rent is
$5,053, including electricity and real estate taxes. We believe this facility is adequate to meet our requirements at our current
level of business activity.

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ManagementÊs 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

We are a New York-based real estate finance company taxed as a REIT 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. As a REIT, we are required to distribute at least 90%
of our REIT taxable income to our shareholders on an annual basis.

In order to maintain our qualification for taxation as a REIT, we are required to distribute at least 90% of our REIT
taxable income to our shareholders each year. To the extent we distribute less than 100% of our taxable income to our
shareholders (but more than 90%) we will maintain our qualification for taxation as a REIT, but the undistributed portion will
be subject to regular corporate income taxes. As a REIT, we may also be subject to federal excise taxes and minimum state taxes.
We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the
Investment Company Act. In addition, in order for us to qualify for taxation as a REIT, not more than 50% in value of our
outstanding common shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) at any time during the last half of each taxable year, and at least 100 persons must beneficially own our stock
during at least 335 days of a taxable year of 12 months, or during a proportionate portion of a shorter taxable year. To help ensure
that we meet the tests, our restated certificate of incorporation restricts the acquisition and ownership of our capital stock. The
ownership limitation is fixed at 4.0% of our outstanding shares of capital stock, by value or number of shares, whichever is more
restrictive.

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) $3 million. Our loans typically have a maximum initial term of 12
months bearing interest at a fixed rate of 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 940 loans and never foreclosed on a property and 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 carefully manage our portfolio of first mortgage real estate loans in a
manner designed to generate attractive risk-adjusted returns across a variety of market conditions and economic cycles. We
believe that the demand for relatively small loans secured by residential and commercial real estate held for investment around
the New York metropolitan market, including New Jersey and Connecticut, and in the Florida market remains relatively strong,
but weakened due to the COVID-19 pandemic. Our ability to close deals fast has created an opportunity for non-bank “hard
money” real estate lenders like us to selectively originate high-quality first mortgage loans and this 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 business competitors will not survive the COVID-19 pandemic if it continues for an extended period.

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ManagementÊs Discussion and Analysis of Financial Condition and Results of Operations

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, during the second quarter of 2020,
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 payoff. We agreed to accommodate the requests and since the date of the forbearance
agreements, those borrowers have timely paid monthly interest. In addition, due to market conditions and intense competition in
the market, we have begun to charge our customers lower interest rates and origination fees charged on loans, which has
resulted in our reduced revenues in 2020. We have also seen a lower demand of new loans resulting from the COVID-19
pandemic. To date, we have 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 our business.

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, 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 knowledge of the New York metropolitan area 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 in terms of meeting the needs of borrowers without compromising our standards on credit risk, our expertise,
our intimate knowledge of the New York metropolitan area 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 a limited amount of advertising. Finally, our Chief
development.
portion
Executive Officer
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.

new business

significant

spends

time

also

his

At December 31, 2020, we were committed to $4,597,731 in construction loans that can be drawn by our 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.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted 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.

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.

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ManagementÊs Discussion and Analysis of Financial Condition and Results of Operations

Effective January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit
Losses (Topic 326). The ASU introduces a new credit loss methodology, Current Expected Credit Losses (“CECL”), which
requires earlier recognition of credit losses, while also providing additional transparency about credit risk. Management
estimates our CECL reserve primarily using the Weighted Average Remaining Maturity (“WARM”) method, which requires
reference to historic loss data taking into consideration expected economic conditions over the relevant timeframe. Application
of the WARM method to estimate a CECL reserve requires judgment, including (i) the appropriate historical loan loss reference
data, (ii) the expected timing and amount of future loan fundings and repayments, and (iii) the current credit quality of our loan
portfolio and expectations of performance and market conditions over the relevant time period. In addition, management reviews
each loan on a quarterly basis and evaluates the borrower’s ability to pay the monthly interest, the borrower’s likelihood of
executing the original exit strategy, as well as the loan-to-value (LTV) ratio. Failure to properly measure an allowance for
credit losses could result in the overstatement of earnings and the carrying value of the loans receivable. Actual losses, if any,
could differ significantly from estimated amounts.

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of long lived
assets, including intangible assets, may not be recoverable. When such events or changes in circumstances occur, we assess 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, we recognize 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
Report, which contain accounting policies and other disclosures required by accounting principles generally accepted in the
United States of America.

Results of operations

Years ended December 31, 2020 and 2019

Total revenue

Total revenue for the year ended December 31, 2020 was approximately $7,006,000, compared to approximately
$7,340,000 for the year ended December 31, 2019, a decrease of $334,000, or 4.6%. The decrease in revenue was primarily
attributable to lower interest rates and origination fees 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. In 2020, approximately
$5,989,000 of our revenue represents interest income on secured, real estate loans that we offer to small businesses compared to
approximately $6,186,000 in 2019, and approximately $1,018,000 represents origination fees on such loans, compared to
approximately $1,154,000 in 2019. 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 deferred financing costs

Interest and amortization of deferred financing costs for the year ended December 31, 2020 were approximately
$1,356,000, compared to approximately $1,635,000 for the year ended December 31, 2019, a decrease of $279,000 or 17.1%.
The decrease in interest and amortization of deferred financing costs was primarily attributable to decreased interest expense due
to lower LIBOR rates (See Note 5 to the financial statements included elsewhere in this Report).

General and administrative expenses

General and administrative expenses for the year ended December 31, 2020 were approximately $1,434,000, compared
to approximately $1,203,000 for the year ended December 31, 2019, an increase of $231,000 or 19.2%. The increase is
primarily attributable to increases in payroll expense and compensation to members of our board of directors, as well as an
annual bonus paid to officers in 2020 and a voluntary waiver from the Company’s CEO forgoing his base salary for the months
of November and December 2019, partially offset by decreases in travel expense, and in advertising and appraisal fees.

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ManagementÊs Discussion and Analysis of Financial Condition and Results of Operations

Other loss

Other loss for the year ended December 31, 2019 in the amount of $15,000 is due to our write off of the value of our

investment in a privately held company.

Net income

Net income for the year ended December 31, 2020 was approximately $4,229,000, compared to approximately
$4,495,000 for the year ended December 31, 2019, a decrease of $266,000, or 5.9%. This decrease is primarily attributable to
the decrease in revenue, partially offset by the decrease in interest expense.

Liquidity and Capital Resources

At December 31, 2020, we had cash of approximately $132,000, compared to cash of approximately $118,000 at
December 31, 2019 (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).

For the years ended December 31, 2020 and 2019, net cash provided by operating activities was approximately
$4,222,000 and $4,432,000, respectively. The decrease in net cash provided by operating activities primarily resulted from a
decrease in net income and an increase in interest receivable on loans.

For the year ended December 31, 2020, net cash used in investing activities was approximately $4,607,000, compared
to net cash provided by investing activities of approximately $1,366,000 for the year ended December 31, 2019. Net cash used
in investing activities for the year ended December 31, 2020 primarily consisted of the issuance of our short term commercial
loans of approximately $43,719,000, offset by collection of our commercial loans of approximately $39,136,000. Net cash
provided by investing activities for the year ended December 31, 2019 consisted of collection of our commercial loans of
approximately $49,420,000, offset by the issuance of our short term commercial loans of approximately $48,054,000.

For the year ended December 31, 2020, net cash provided by financing activities was approximately $726,000,
compared to net cash used in financing activities of approximately $6,034,000 for the year ended December 31, 2019. Net cash
provided by financing activities for the year ended December 31, 2020 reflects the net proceeds from the Webster Credit Line
of an aggregate of approximately $5,076,000, offset by dividend payments of approximately $4,143,000, the purchase of
treasury shares of approximately $179,000 and deferred financing costs of approximately $27,000. Net cash used in financing
activities for the year ended December 31, 2019 reflects the repayments of the Webster Credit Line of approximately $1,389,000,
dividend payments of approximately $4,636,000 and the purchase of treasury shares of approximately $29,000, offset by the
proceeds from the exercise of options of approximately $20,000.

We maintain the Webster Credit Line which currently provides us with a credit line of $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, which provides for the current Webster Credit Line.

Effective July 11, 2018, we entered into a Waiver and Amendment No. 1 to the Amended and Restated Credit
Agreement (“Amendment No. 1”) with Webster, Flushing and Mr. Ran, as guarantor. In conjunction with the execution of
Amendment 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 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, 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
No. 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.

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ManagementÊs Discussion and Analysis of Financial Condition and Results of Operations

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 bonds 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 December 31, 2020. At
December 31, 2020, the outstanding amount under the Amended and Restated Credit Agreement was $20,308,873. The interest
rate on the amount outstanding fluctuates daily. The rate, including a 0.5% agency fee, for December 31, 2020 was
approximately 4.14%.

MBC Funding II has $6,000,000 of outstanding principal amount of Notes. The Notes mature on April 22, 2026, unless
redeemed earlier, and accrue interest at a rate of 6% per annum commencing on May 16, 2016 and will be payable monthly, in
arrears, in cash, 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 II, together with its 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 II plus its
cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, MBC Funding II 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 it plus, its 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.

The Notes are secured by a first priority lien on all of MBC Funding II’s assets, including, primarily, mortgage notes,
mortgages and other transaction documents entered into in connection with first mortgage loans originated and funded by us,
which MBC Funding II acquired from MBC pursuant to an asset purchase agreement. MBC Funding II 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 if the Notes are redeemed
prior to April 22, 2021, the redemption price will be 101.5% of the principal amount of the Notes redeemed plus the accrued but
unpaid interest on the Notes redeemed up to, but not including, the date of redemption. No Notes were redeemed by MBC
Funding II as of December 31, 2020.

Each Noteholder had the right to cause MBC Funding II to redeem his, her or its Notes on April 22, 2021 by notifying
MBC Funding II in writing, no earlier than November 22, 2020 and no later than January 22, 2021. No Noteholder exercised
such right during the required time frame and as such the Notes are no longer redeemable by the Noteholders.

In addition, MBC Funding II is obligated to offer to redeem the Notes if there occurs a “change of control” with respect
to us or MBC Funding II or if we or MBC Funding II 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.

We guarantee MBC Funding II’s obligations under the Notes, which are secured by our pledge of 100% of the

outstanding common shares of MBC Funding II that we own.

On November 1, 2018, our Board of Directors authorized a share buy back program for the repurchase of up to 100,000
shares of the Company’s common stock. The Company purchased an aggregate of 13,112 common shares under this repurchase
program, at an aggregate cost of approximately $78,000, before the program expired on October 31, 2019. On February 26, 2020,

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ManagementÊs Discussion and Analysis of Financial Condition and Results of Operations

our Board of Directors authorized another share buy back program for the repurchase of up to 100,000 shares of the Company’s
common stock. The Company purchased an aggregate of 38,899 common shares under this repurchase program, at an aggregate
cost of approximately $179,000 as of September 30, 2020. No additional repurchases were made by us pursuant to this buy back
program before the program expired on February 25, 2021.

We anticipate that our current cash balances 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. However, we expect our working capital requirements to
increase over the next 12 months as we continue to strive for growth.

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, during the second quarter of 2020, 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 payoff. We
agreed to accommodate the requests and since the date of the forbearance agreements, those borrowers have timely paid their
monthly interest. However, to date, we have not been materially impacted by the COVID-19 pandemic and have not
experienced any material disruptions in our business operations. 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.

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.

Contractual Obligations

Set forth below is a summary of our current obligations as of December 31, 2020 to make future payments due by the

period indicated below, excluding payables and accruals. We expect to be able to meet our obligations in the ordinary course.

Contractual Obligations

Total

Less than 1
Year

1-3
Years

3-5
Years

Operating Lease Obligations (*) $ 429,000

$ 63,000

$ 127,000

---

122,000

---

More than
5 years

117,000

6,000,000

Senior Secured Notes

$ 6,000,00

Amounts due under Amended and
Restated Credit Agreement at
December 31, 2020

$ 20,308,873

---

$ 20,308,873

---

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

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Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Manhattan Bridge Capital, Inc. and Subsidiary (the “Company”) as of December 31, 2020 and 2019, and the
related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related
notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in
conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for credit losses as of January 1, 2020 due to the adoption of ASU
2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements.”

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to
the audit committee and that:
(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the
critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

Allowance for Credit Losses

As described in Note 1 – Significant Accounting Policies, to the consolidated financial statements, effective January 1, 2020, the Company adopted ASU 2016-13, “Financial
Instruments – Credit Losses (Topic 326)”. Upon adoption, the Company estimates and records an allowance for credit losses, if any, which represents credit losses expected over the
remaining contractual life of its loans receivable. Management assessed the credit losses on its loans receivable primarily using the Weighted Average Remaining Maturity method
along with consideration of other variables. Based on these assessments, the Company determined that there was no effect on the allowance for credit losses on January 1, 2020 due
to the adoption of ASU 2016-13 and, as of December 31, 2020, no allowance for credit losses is required.

The allowance for credit
evaluate the significant subjective and complex judgments made by management throughout the initial adoption and subsequent application processes.

losses was identified by us as a critical audit matter because of the extent of auditor judgment applied and significant audit effort

Addressing the critical audit matter involved performing procedures and evaluating audit evidence in connection with our overall opinion on the consolidated
financial statements. These procedures included evaluating the appropriateness of the method and other variables used, testing the application of the method and other variables used,as
well as testing the accuracy of data used with respect to the method and other variables. These procedures also included, with the assistance of outside valuation specialists, as well
as utilization of independent empirical data, evaluating significant judgments applied by management in determining whether indicators of impairment were present, with respect to
the Company’s loan portfolio and the underlying collateral, by obtaining evidence to corroborate such judgments and searching for evidence contrary to such judgments.

We have served as the Company’s auditors since 2007.

New York, New York

March 10, 2021

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Manhattan Bridge Capital, Inc. - Consolidated Balance Sheets

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2020 AND 2019

Assets
Loans receivable
Interest receivable on loans
Cash
Cash - restricted
Other assets
Operating lease right-of-use asset, net
Deferred financing costs, net

Total assets

Liabilities and Stockholders’ Equity
Liabilities:
Line of credit
Senior secured notes (net of deferred financing costs of
$397,327 and $472,413, respectively)
Deferred origination fees
Accounts payable and accrued expenses
Operating lease liability
Other liabilities
Dividends payable

Total liabilities

Commitments and contingencies
Stockholders’ equity:
Preferred shares - $.01 par value; 5,000,000 shares authorized;
none issued
Common shares - $.001 par value; 25,000,000 shares
authorized; 9,882,058 issued; 9,619,945 and 9,658,844
outstanding, respectively
Additional paid-in capital
Treasury stock, at cost – 262,113 and 223,214 shares
Accumulated deficit

Total stockholders’ equity

2020

2019

$ 58,097,970
827,236
131,654
327,483
66,566
369,699
22,807
$ 59,843,415

$ 53,485,014
675,996
118,407
---
53,218
87,754
22,637
$ 54,443,026

$ 20,308,873

$ 15,232,993

5,602,673
367,638
168,940
372,907
---
1,058,194
27,879,225

5,527,587
322,119
151,823
91,025
15,000
1,159,061
22,499,608

---

9,882
33,157,096
(798,939)
(403,849)
31,964,190

9,882
33,144,032
(619,688)
(590,808)
31,943,418

Total liabilities and stockholders’ equity

$ 59,843,415

$ 54,443,026

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

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Manhattan Bridge Capital, Inc. - Consolidated Statements Of Operations

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Interest income from loans
Origination fees
Total Revenue

Operating costs and expenses:
Interest and amortization of deferred financing costs
Referral fees
General and administrative expenses

Total operating costs and expenses

Income from operations
Other income
Loss on write-off of investment in privately held company
Income before income tax expense
Income tax expense
Net income

Basic and diluted net income per common share outstanding:
--Basic
--Diluted

Weighted average number of common shares outstanding
--Basic
--Diluted

2020

2019

$ 5,988,622
1,017,729
7,006,351

$ 6,185,764
1,153,941
7,339,705

1,356,015
5,875
1,434,438
2,796,328

4,210,023
20,000
---
4,230,023
(645)
$ 4,229,378

1,635,134
3,750
1,202,739
2,841,623

4,498,082
12,000
(15,000)
4,495,082
(572)
$ 4,494,510

$0.44
$0.44

$0.47
$0.47

9,631,296
9,631,296

9,658,147
9,659,285

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

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Manhattan Bridge Capital, Inc. - Consolidated Statements of Changes in StockholdersÊ Equity

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Common Stock

Additional
Paid-in
Capital

Treasury Stock

Accumulated
Deficit

Totals

Amount

Cost

Balance, January 1, 2019

9,874,191

$9,874

$33,110,536

218,214

$(590,234)

$(448,801)

$32,081,375

Exercise of warrants and options

7,867

20,432

Non cash compensation

13,064

9,882,058

$9,882

33,144,032

223,214

(619,688)

(590,808)

31,943,418

Non cash compensation

13,064

5,000

(29,454)

20,440

13,064

(29,454)

(3,477,456)

(1,159,061)

4,494,510

38,899

(179,251)

13,064

(179,251)

(2,984,225)

(1,058,194)

4,229,378

Purchase of treasury shares

Dividends paid

Dividends declared and payable

Net income for the year ended
December 31, 2019
Balance, December 31, 2019

Purchase of treasury shares

Dividends paid

Dividends declared and payable

Net income for the year ended
December 31, 2020
Balance, December 31, 2020

9,882,058

$9,882

$33,157,096

262,113

$(798,939)

$(403,849)

$31,964,190

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

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Manhattan Bridge Capital, Inc. - Consolidated Statements of Cash Flows

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Cash flows from operating activities:

Net income
Adjustments to reconcile net income to net cash provided by operating activities -

2020

2019

4,229,378

4,494,510

Amortization of deferred financing costs
Depreciation
Non cash compensation expense
Loss on write-off of investment in privately held company
Adjustment to operating lease right-of-use asset and liability

Changes in operating assets and liabilities

Interest receivable on loans
Other assets
Accounts payable and accrued expenses
Deferred origination fees

Net cash provided by operating activities

Cash flows from investing activities:
Issuance of short term loans
Collections received from loans
Release of loan holdback relating to mortgage receivable
Purchase of fixed assets

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Proceeds from (repayments of) line of credit, net
Dividends paid
Purchase of treasury shares
Deferred financing costs incurred
Proceeds from exercise of stock options and warrants

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and restricted cash
Cash and restricted cash, beginning of year
Cash and restricted cash, end of year

Supplemental Cash Flow Information:
Taxes paid during the year
Interest paid during the year
Operating leases paid during the year

Supplemental Information – Noncash Information:
Dividend declared and payable
Establishment of right-of-use asset and operating lease liability
Interest receivable converted to loans receivable in connection with
forbearance agreements
Loan holdback relating to mortgage receivable

102,017
1,135
13,064
---
(62)

(180,911)
(5,724)
17,117
45,519
4,221,533

(43,719,304)
39,136,019
(15,000)
(8,759)
(4,607,044)

5,075,880
(4,143,286)
(179,251)
(27,102)
---
726,241

340,730
118,407
459,137

$
645
$ 1,264,533
56,572
$

$ 1,058,194
329,421
$

$
$

29,671
---

94,489
1,414
13,064
15,000
3,271

(79,219)
3,499
(31,893)
(82,557)
4,431,578

(48,053,965)
49,420,078
---
---
1,366,113

(1,389,154)
(4,636,173)
(29,454)
---
20,440
(6,034,341)

(236,650)
355,057
118,407

$
572
$ 1,560,644
52,571
$

$ 1,159,061
135,270
$

$
$

---
15,000

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

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Notes to Consolidated Financial Statements

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019

The Company

Manhattan Bridge Capital, Inc. (“MBC”) and its wholly-owned subsidiary, MBC Funding II Corp. (“MBC Funding”)
(collectively the “Company”), offer short-term, secured, non–banking loans (sometimes referred to as “hard money” loans) 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.

Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Manhattan Bridge Capital, Inc. and its wholly-owned

subsidiary, MBC Funding. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America (“U.S. 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 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.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and

short term commercial loans.

The Company maintains its cash with two major financial institutions. Accounts at the financial institutions 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.

Allowance for Loan Loss

Effective January 1, 2020,

the Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial
Instruments – Credit Losses (Topic 326)”. The ASU introduces a new credit loss methodology, Current Expected Credit Losses
(“CECL”), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The
CECL methodology utilizes a lifetime “expected credit loss” methodology for the recognition of credit losses for loans and other
receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for
changes in expected lifetime credit losses. This method replaces the multiple existing impairment methods in current U.S.
GAAP, which generally require a loss be incurred before it is recognized.

The Company estimates its CECL reserve primarily using the Weighted Average Remaining Maturity (“WARM”)
method, which has been identified as an acceptable loss-rate method for estimating CECL reserves in the Financial Accounting
Standards Board (“FASB”) Staff Q&A Topic 326, No.1. The WARM method requires reference to historic loss data taking into
consideration expected economic conditions over the relevant timeframe. The Company applies the WARM method for the
majority of its loan portfolio, which loans share similar risk characteristics.

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Notes to Consolidated Financial Statements

Application of the WARM method to estimate a CECL reserve requires judgment, including (i) the appropriate historical
loan loss reference data, (ii) the expected timing and amount of future loan fundings and repayments, and (iii) the current credit
quality of the Company’s loan portfolio and expectations of performance and market conditions over the relevant time period. To
estimate the historic loan losses relevant to the Company’s portfolio, the Company reviewed its historical loan performance, which
includes zero realized loan losses since the inception of our business. In addition, the Company reviews each loan on a quarterly
basis and evaluates the borrower’s ability to pay the monthly interest, the borrower’s likelihood of executing the original exit
strategy, as well as the loan-to-value (LTV) ratio. Based on these analyses, the Company has determined that there was no effect
on the allowance for credit losses on January 1, 2020 due to the adoption of ASU 2016-13 and, as of December 31, 2020, no
allowance for credit losses is required. Failure to properly measure an allowance for credit losses could result in the overstatement
of earnings and the carrying value of the loans receivable. Actual losses, if any, could differ significantly from estimated amounts.

Accrued interest receivable on loans receivable is excluded from the estimate of credit losses.

Income Taxes

The Company follows Accounting Standards Codification (“ASC”) 740-10, “Accounting for Uncertainty in Income
Taxes” (“ASC 740”), which prescribes a recognition threshold and measurement attribute for financial statement recognition and
measurement of a tax position taken, or expected to be taken, in a tax return. For those benefits to be recognized, a tax position
must be more likely than not to be sustained upon examination by taxing authorities. As of December 31, 2020 and 2019, the
Company has no material uncertain tax positions to be accounted for in the consolidated financial statements. The Company
recognizes interest and penalties related to uncertain tax positions, if any, as part of income tax expense.

The Company is organized and conducts its operations to qualify as a real estate investment trust (“REIT”) for federal
income tax purposes. The Company elected to be taxed as a REIT commencing with its taxable year ended December 31, 2014.
A REIT calculates taxable income similar to other domestic corporations, with the major difference being a REIT is entitled to a
deduction for dividends paid. A REIT is generally required to distribute each year at least 90% of its REIT taxable income. If it
chooses to retain the remaining 10% of taxable income, it may do so, but it will be subject to a corporate income tax on such
income. The Company may be subject to federal excise tax and minimum state taxes.

Revenue Recognition

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

The Company presents deferred financing costs, excluding those incurred in connection with its line of credit, in the
consolidated balance sheet as a direct reduction from the related debt liability rather than an asset, in accordance with ASU
2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance 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.

Deferred 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”), Flushing
Bank (“Flushing”) and Mizrahi Tefahot Bank Ltd (“Mizrahi”), which established the Company’s credit line (the “Webster Credit
Line”), as discussed in Note 5, are presented as an asset
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”. These costs are being amortized over the term of the respective agreement, using the
straight-line method.

in the balance sheet,

Earnings Per Share (“EPS”)

Basic and diluted EPS 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 EPS includes the potential dilution from the exercise of stock options and warrants for
common shares using the treasury stock method.

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Notes to Consolidated Financial Statements

The numerator in calculating both basic and diluted EPS for each year is the reported net income. The denominator is

based on the following weighted average number of common shares:

Basic weighted average common shares outstanding
Incremental shares for assumed exercise of warrants
Diluted weighted average common shares outstanding

Years ended
December 31,

2020
9,631,296
0
9,631,296

2019
9,658,147
1,138
9,659,285

33,612 and 42,124 vested warrants were not included in the diluted EPS calculation for the years ended December 31,

2020 and 2019, respectively, because their effect would have been anti-dilutive.

Stock-Based Compensation

The Company measured and recognized 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 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.

Fair Value of Financial Instruments

For the line of credit, 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 Company determines the fair value of its
senior secured notes using market prices which currently approximate their carrying amount.

Recent Accounting Pronouncements

In May 2019, the FASB issued ASU 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition
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 adopted 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 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. The Company believes 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: Facilitation of the Effects of Reference Rate
Reform on Financial Reporting.” This ASU provides optional expedients and exceptions for applying U.S. GAAP to contract
modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected
to be discontinued. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU
2021-01 amends the scope of ASU 2020-04 and focuses on refining accounting relief for modifications made to certain
derivatives and hedging contracts, such as interest rate swaps. The adoption of these guidances did not have a material impact on
the Company’s consolidated financial statements.

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Notes to 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.

Cash - Restricted

Restricted cash mainly represents collections received, pending check clearance, from the Company’s commercial loans
and is primarily dedicated to the reduction of the Company’s Webster Credit Line established pursuant to the Amended and
Restated Credit Agreement (see Note 5).

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 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.

For the years ended December 31, 2020 and 2019, the total amounts of $43,719,304 and $48,053,965, respectively,
have been lent, offset by collections received from borrowers, under the commercial loans in the amount of $39,136,019 and
$49,420,078, respectively. The face amounts of the loans the Company originated in the past seven years have ranged from a
minimum of $30,000 to a maximum of $2,500,000. The Company’s board of directors established a policy limiting 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) $3 million. The Company’s loans typically have a maximum initial term of 12 months and bear interest
at a fixed rate of 9% to 14% per year. In addition, the Company usually receives 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, funding and managing 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, up to 80% of construction costs.

At December 31, 2020, the Company was committed to $4,597,731 in construction loans that can be drawn by the

borrowers when certain conditions are met.

At December 31, 2020 and 2019, 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 December 31, 2020 and 2019:

Performing loans

Developers-
Residential

Developers-
Commercial

Developers-
Mixed Used

Total
outstanding loans

December 31, 2020

$ 55,119,107

$ 1,564,863

$ 1,414,000

$ 58,097,970

December 31, 2019

$ 48,395,014

$ 1,975,000

$ 3,115,000

$ 53,485,014

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Notes to Consolidated Financial Statements

At December 31, 2020, the Company’s loans receivable consisted of loans in the amount of $367,500, $1,594,463,
$1,520,000, $5,026,571 and $15,099,018, originally due in 2016, 2017, 2018, 2019 and 2020, respectively. At December 31,
2019, the Company’s loans receivable consisted of loans in the amount of $360,000, $1,960,000, $3,190,000 and $11,877,515,
originally due in 2016, 2017, 2018 and 2019, respectively.

During the second quarter of 2020, the Company agreed to grant forbearances, due to the COVID-19 pandemic, in an
aggregate amount of approximately $30,000 to two of its long term borrowers deferring two to three months of interest payments
to payoff. Since the date of the forbearance agreements, such borrowers have timely paid monthly interest.

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, 2020, no loan impairments exist and there are no
provisions for impairments of loans or recoveries thereof.

Subsequent to the balance sheet date, $8,040,863 of the loans receivable at December 31, 2020 were paid off, includ-

ing $4,384,863 originally due in or before 2020.

Line of Credit

The Company has executed the Amended and Restated Credit and Security Agreement with Webster, Flushing Bank
and Mizrahi, which provides for the Webster Credit Line. Currently, the Webster Credit Line provides the Company with a
credit line of $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 No. 1”) with Webster, Flushing and Mr. Assaf Ran, the Company’s President and Chief Executive
Officer, as guarantor. Pursuant to the terms of Amendment No. 1, the 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, 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 No. 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.

On February 25, 2020, the Company 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. Pursuant to the terms of
Amendment No. 3, the 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 bonds 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.

The costs to establish and 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 years ended December 31, 2020 and 2019 were $26,932
and $19,403, respectively.

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Notes to Consolidated Financial Statements

The Company was in compliance with all covenants of the Webster Credit Line, as amended, as of December 31, 2020.
At December 31, 2020, the outstanding amount under the Amended Credit Agreement was $20,308,873. The interest rate on the
amount outstanding fluctuates daily. The rate, including a 0.5% Agency Fee, as of December 31, 2020, was approximately
4.14%.

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”. 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 if the Notes are redeemed prior to April 22, 2021, the redemption price will be 101.5% of the principal amount of
the Notes redeemed plus the accrued but unpaid interest on the Notes redeemed up to, but not including, the date of redemption.
No Notes were redeemed by MBC Funding as of December 31, 2020.

Each Noteholder had the right to cause MBC Funding to redeem his, her or its Notes on April 22, 2021 by notifying
MBC Funding in writing, no earlier than November 22, 2020 and no later than January 22, 2021. No Noteholder exercised such
right during the required time frame and as such the Notes are no longer redeemable by the Noteholders.

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.

Stockholders’ Equity

The Company adopted a share buy back program on November 1, 2018 for the repurchase of up to 100,000 shares of
the Company’s common stock. The Company purchased an aggregate of 13,112 common shares under this repurchase program,
at an aggregate cost of approximately $78,000, before the program expired on October 31, 2019.

The Company adopted another share buy back program on February 26, 2020 for the repurchase of up to 100,000 shares
of the Company’s common stock. The Company purchased an aggregate of 38,899 common shares under this repurchase
program, at an aggregate cost of approximately $179,000 during the first three quarters of 2020. No additional repurchases were
made before the program expired on February 25, 2021.

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Notes to Consolidated Financial Statements

Income Taxes

Income tax expense consists of the following:

Current Taxes:
Federal
State
Income tax expense

2020

2019

---
645
645

---
572
572

Simple IRA Plan

On October 26, 2000, the board of directors approved a Simple IRA Plan (the “IRA Plan”) to attract and retain
valuable executives. The IRA Plan allows for participation by up to 100 eligible employees of the Company. Under the IRA
Plan, eligible employees may contribute a portion of their pre-tax yearly salary, up to the maximum contribution limit for Simple
IRA Plans as set forth under the Internal Revenue Code of 1986, as amended, with the Company matching on a dollar-for-dolar
basis up to 3% of the employees’ annual pre-tax compensation. These thresholds are subject to change under notice by the trustee
for the IRA Plan. The Company is not responsible for any other costs under the IRA Plan. For the years ended December 31,
2020 and 2019 the Company contributed $16,942 and $11,945, respectively, as matching contributions to the IRA Plan.

10.

Stock-Based Compensation

Stock based compensation expense recognized under ASC 718 for each of the years ended December 31, 2020 and 2019
of $13,064 reflects 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 is being amortized over 15 years.

On August 15, 2016, in connection with a public offering of the Company’s common stock, 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
commencing on August 9, 2017 and expire on August 9, 2021.
time
The fair value of these warrants, using the Black-Scholes option pricing model, on the date of issuance was $47,020. At
December 31, 2020, all of the August 2016 Representative Warrants were outstanding.

in whole or

to time,

in part,

11.

Commitments and Contingencies

Operating Leases

On October 27, 2020, the Company amended its existing lease (the “Lease Amendment”) for its corporate headquarters
located at 60 Cutter Mill Road, Great Neck, New York, to expand the office premises and to extend the term of the lease through
November 30, 2027. Among other things, the Lease Amendment provides for gradual rent increases from approximately $4,500
per month during the first three years to $5,100 per month during the last year of the extension term.

As a result of the adoption of ASU 2016-02 effective January 1, 2019, the Company recorded a right-of-use asset and
corresponding operating lease liability in an aggregate amount of $135,270, not including its share of its variable real estate
taxes. The Company used a discount rate of 6.5% which it believes to be its incremental borrowing rate at the time. In November
2020, the Company recorded an additional right-of-use asset and corresponding operating lease liability of $329,421, not
including its share of its variable real estate taxes, with a discount rate of 4.14% for the Lease Amendment.

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Notes to Consolidated Financial Statements

At December 31, 2020, approximate future minimum lease payments, including mandatory fixed electricity charges,

are as follows:

2021……..……………
2022……..……………
2023……..……………
2024……..……………
2025……..……………
Thereafter……..……...

$ 63,325
63,326
63,326
61,526
60,926
116,774
429,203
(56,296)
Present Value of Net Minimum Lease Payments $ 372,907

Total minimum lease payments
Less: amount representing interest

Rent expense, including fixed electricity charges and variable real estate taxes, in the years 2020 and 2019 was

approximately $56,000 and $52,000, respectively.

Employment Agreements

In March 1999, the Company entered into an employment agreement with Mr. Ran, 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 a
current annual base salary of $305,000 and annual bonuses as determined by the Compensation Committee of the board of
directors, 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.

In October 2019, Mr. Ran voluntarily agreed to forgo his base salary in an aggregate amount of $50,833 for the months
of November and December 2019, and therefore Mr. Ran’s annual base compensation for the years 2020 and 2019 was $305,000
and $254,167, respectively. In addition, the Compensation Committee approved an annual bonus of $80,000 to Mr. Ran in 2020.

12.

COVID-19

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 the Company’s originated loans may need to be extended. For
example, during the second quarter of 2020, two of the Company’s long term borrowers requested forbearance agreements, due
to the impact of the COVID-19 pandemic, deferring two to three months of interest payments to payoff. The Company agreed
to accommodate the requests and since the date of the forbearance agreements, such borrowers have timely paid their monthly
interest. 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. 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.

13.

Subsequent Events

Subsequent to the balance date, the Company’s board of directors has declared a quarterly dividend of $0.11 per share

to be paid to all shareholders of record on April 9, 2021. The dividend will be paid on April 15, 2021.

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Page 2

Corporate Information

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

Lyron Bentovim (1)

Eran Goldshmit (1)(2)(3)

Michael J. Jackson (1)(2)(3)

Phillip Michals (1)(2)(3)

STOCK MARKET INFORMATION

Common Stock
High
Low

Cash dividends
declared

$6.62
$6.73
$6.72
$6.60

$6.48
$4.99
$5.47
$5.50

$5.52
$5.89
$6.00
$6.08

$2.54
$3.60
$3.90
$4.11

$0.1200
$0.1200
$0.1200
$0.1200

$0.1100
$0.1000
$0.1000
$0.1100

$6.10

$4.89

$0.1100

2019

First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2021
First Quarter

Holders

(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Corporate Governance and Nominating

Committee.

As of April 30, 2021, the number of registered holders of our

common shares was 11 and the estimated number of beneficial

owners of our common shares was approximately 4,800. American

Stock Transfer & Trust Company serves as transfer agent for our

SHAREOWNER SERVICES

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

common shares.

Dividends

ASTfinancial
6201 15th Avenue
Brooklyn, NY 11219
Phone: 800-937-5449
Email: help@astfinancial.com

COUNSEL

Sullivan & Worcester LLP
1633 Broadway, 32nd Floor
New York, NY 10019

INDEPENDENT PUBLIC ACCOUNTANTS

Hoberman & Lesser CPA’s, LLP
252 West 37th Street, Suite 600E
New York, NY 10018

OTHER INFORMATION

A copy of the Company’s annual report on Form 10-K, for the
year ended December 31, 2020, 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
investor relations department at the telephone number above.

information can be received by contacting our

We elected to be taxed as a REIT commencing with our year

ended December 31, 2014. From and after the effective date of our

REIT election, we intend to pay regular quarterly distributions to

holders of our common shares in an amount not less than 90% of our

REIT taxable income (determined before the deduction for

dividends paid and excluding any net capital gains). As a REIT, our

distributions generally will be taxable as ordinary income to our

shareholders (subject to the lower effective tax rates applicable to

qualified REIT dividends via the deduction-without-outlay

mechanism of Section 199A of the Code, which is generally

available to our noncorporate U.S. shareholders for taxable years

before 2026), although we may designate a portion of the

distributions as qualified dividend income or capital gain or a

portion of the distributions may constitute a return of capital. For tax

reporting purposes,

taxable income dividends/distributions and

non-taxable return of capital distributions may result and will be

reported as

such to U.S.

individual

taxpayers on Form

1099-DIV. For the tax year of 2020, 100% of our total distributions

are characterized as non-qualified dividends (Section 199A).

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Page 1

Suite

Cutter Mill
Road,
205
60
N e c k ,
N Y
1 1 0 2 1
G r e a t
516-444-3400
Tel:
516-444-3404
Fax:
www.manhattanbridgecapital.com