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MANHATTAN BRIDGE CAPITAL, INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 13, 2014

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q. The discussion and analysis contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements.

We are a New York-based real estate finance company that specializes in originating, servicing and managing a portfolio of first mortgage loans. We offer short-term secured, non-banking loans (sometimes referred to as ''hard money'' loans) to real estate investors to fund their acquisition, renovation, rehabilitation or improvement of properties located in the New York metropolitan area.

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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 also personally guaranteed by the principal(s) of the borrower, which may be collaterally secured by a pledge of the guarantor's interest in the borrower.

The loans are generally for a term of one year. Most of the loans provide for receipt of interest only during the term of the loan and a balloon payment at the end of the term. Loans ranging in size from $30,000 to $1,300,000 were concluded at stated interest rates of 12% to 15%, but often at higher effective rates based upon points or other up-front fees.

For the six month periods ended June 30, 2014 and 2013 the total amounts of $9,764,000 and $8,430,500 have been lent, offset by collections received from borrowers, under our commercial loans in the amount of $7,537,983 and $7,871,866, respectively.

The Company uses its own employees, outside lawyers and other independent professionals to verify titles and ownership, to file liens and to consummate the transactions. Outside appraisers are also used to assist the Company's officials in evaluating the worth of collateral. To date, the Company has not experienced any defaults and none of the loans previously made have been non-collectable, although no assurances can be given that existing or future loans may not go into default or prove to be non-collectible in the future.

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

At June 30, 2014, we were committed to an additional $1,555,500 in construction loans that can be drawn by the borrower when certain conditions are met.

The Company completed a public offering of 1,754,386 common shares at a price to the public of $2.85 per share on July 31, 2014. Gross proceeds raised by the Company in the offering were $5,000,000, before deducting underwriting discounts and commissions and other estimated offering expenses. The Company has granted the underwriters a 45-day option to purchase up to 263,157 additional common shares to cover over-allotments, if any.

The net proceeds from the issuance and sale of our common shares in this offering were approximately $4.3 million (or approximately $5.0 million if the representative exercises its over-allotment option in full), after deducting underwriting discounts and commissions and offering expenses payable by us.

As a result of the offering, the Company believes it currently satisfies all of the requirements to be taxed as a Real Estate Investment Trust and intends to elect REIT status beginning with its 2014 tax year. As a REIT, the Company will generally not be subject to income taxes on its income, including interest earned on its real estate secured loans, so long as it meets certain requirements, including distributing 90% of its taxable income to shareholders.

13 Results of Operations



Three Months Ended June 30, 2014 compared to Three Months Ended June 30, 2013

Revenue



Total revenues for the three month period ended June 30, 2014 were approximately $630,000 compared to approximately $554,000 for the three month period ended June 30, 2013, an increase of $76,000, or 13.7%. The increase in revenue represents an increase in lending operations. For the three month periods ended June 30, 2014 and 2013, approximately $518,000 and $448,000, respectively, of our revenues were attributable to interest income on the secured commercial loans that we offer to small businesses, and approximately $112,000 and $106,000, respectively, of our revenues were attributatble to origination fees on such loans. Our loans are principally secured by collateral consisting of real property and, generally, accompanied by personal guarantees.

Interest and amortization of debt service costs

Interest and amortization of debt service costs for the three month period ended June 30, 2014 were approximately $123,000 compared to approximately $102,000 for the three month period ended June 30, 2013, an increase of $21,000, or 20.6%. The increase in interest and amortization of debt service costs was primarily attributable to our use of the Sterling Credit Line to increase our lending capacity, offset by the repayment of Senior Secured Notes. (See Note 8 to the financial statements included elsewhere in this report.)

General and administrative expenses

General and administrative expenses for the three month period ended June 30, 2014 were approximately $176,000 compared to approximately $205,000 for the three month period ended June 30, 2013, a decrease of $29,000, or 14.1%. This decrease was primarily attributable to decreases in travel and meal expenses, in Board member fees and in public relations cost.

Other income



Other income for each of the three month periods ended June 30, 2014 and 2013 was approximately $7,000, which represents the fees generated from the seller buy back options. (See Note 4 to the financial statements included elsewhere in this report.)

Income tax expense



The Company reversed $83,000 of its income tax accrual at June 30, 2014, because the Company believes it currently satisfies all of the requirements to be taxed as a Real Estate Investment Trust and intends to elect REIT status beginning with its 2014 tax year. For the three month period ended June 30, 2013 we had income tax expense of $96,000.

Six Months Ended June 30, 2014 compared to Six Months Ended June 30, 2013

Revenue



Total revenues for the six month period ended June 30, 2014 were approximately $1,239,000 compared to approximately $1,088,000 for the six month period ended June 30, 2013, an increase of $151,000, or 13.9%. The increase in revenue represents an increase in lending operations. For the six month periods ended June 30, 2014 and 2013, revenues of approximately $1,025,000 and $892,000, respectively, were attributable to interest income on the secured commercial loans that we offer to small businesses, and approximately $214,000 and $196,000, respectively, were attributable to origination fees on such loans. Our loans are principally secured by collateral consisting of real property and, generally, accompanied by personal guarantees.

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Interest and amortization of debt service costs

Interest and amortization of debt service costs for the six month period ended June 30, 2014 were approximately $239,000 compared to approximately $204,000 for the six month period ended June 30, 2013, an increase of $35,000, or 17.2%. The increase in interest and amortization of debt service costs was primarily attributable to our use of the Sterling Credit Line to increase our lending capacity, offset by the repayment of Senior Secured Notes. (See Note 8 to the financial statements included elsewhere in this report.)

General and administrative expense

General and administrative expenses for the six month period ended June 30, 2014 were approximately $352,000 compared to approximately $378,000 for the six month period ended June 30, 2013, a decrease of $26,000. This decrease was primarily attributable to decreases in travel and meal expenses, in Board member fees and in public relations cost.

Other income



Other income for each of the six month periods ended June 30, 2014 and 2013 was approximately $14,000, which represents the fees generated from the seller buy back options. (See Note 4 to the financial statements included elsewhere in this report.)

Income tax expense



The Company reversed $83,000 of its income tax accrual at June 30, 2014, because the Company believes it currently satisfies all of the requirements to be taxed as a Real Estate Investment Trust and intends to elect REIT status beginning with its 2014 tax year.

For the six month period ended June 30, 2014 we had income tax expense of $32,000, compared to approximately $188,000 for the six month period ended June 30, 2013.

Liquidity and Capital Resources

At June 30, 2014, we had cash and cash equivalents of approximately $135,000 and working capital of approximately $3,528,000 as compared to cash and cash equivalents of approximately $1,021,000 and working capital of approximately $4,677,000 at December 31, 2013. The decrease in cash and cash equivalents primarily reflects the increase in lending operations. The decrease in working capital is primarily attributable to the reclassification of a portion of the Company's short-term loans to long-term loans receivable, offset by a decrease in income taxes payable.

For the six month periods ended June 30, 2014 and 2013, net cash provided by operating activities were approximately $368,000 and $249,000, respectively. The increase in net cash provided by operating activities primarily results from an increase in net income, offset by a decrease in income taxes payable and an increase in interest receivable on loans.

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Net cash used in investing activities was approximately $2,226,000 for the six month period ended June 30, 2014, compared to approximately $559,000 for the same period ended June 30, 2013. Net cash used in investing activities for the six month period ended June 30, 2014 consisted of the issuance of our short term commercial loans of $9,764,000, offset by collection of these loans of approximately $7,538,000. In the period ended June 30, 2013, net cash used in investing activities consisted of the issuance of our short term commercial loans of approximately $8,431,000, offset by collection of these loans of approximately $7,872,000.

Net cash provided by financing activities for the six month period ended June 30, 2014 was approximately $973,000, compared to $1,164,000 for the period ended June 30, 2013. Net cash provided by financing activities for the six month period ended June 30, 2014 reflects the use of the Sterling Credit Line of $1,250,000 and the proceeds from exercise of stock options of approximately $55,000, offset by the capital raising costs in the amount of approximately $204,000 and the dividend payment of approximately $128,000. In the period ended June 30, 2013, net cash provided by financing activities reflects the use of the Sterling Credit Line of $1,500,000 and the proceeds from exercise of stock options of approximately $23,000, offset by the repayment of one of our short term loans of $240,000, the purchase of treasury shares of approximately $76,000 and the dividend payment of approximately $43,000.

On May 2, 2012, the Company entered into a one-year revolving Line of Credit Agreement with Sterling National Bank pursuant to which the Bank agreed to advance up to $3.5 million (the "Sterling Credit Line") against assignments of mortgages and other collateral. The interest rate on the Sterling Credit Line is 2% in excess of the Wall Street Journal prime rate (3.25% at June 30, 2014), but in no event less than 6%, per annum, on the money in use. On January 31, 2013, the Company entered into an amendment to the Line of Credit Agreement with Sterling National Bank to increase the Sterling Credit Line from $3.5 million to $5 million, under the same terms as the original line of credit (the "Amendment"). Effective on May 1, 2013 and July 1, 2013, the term of the Sterling Credit Line was extended through July 1, 2013 and July 1, 2014, respectively. On December 13, 2013, the Company entered into a second amendment to the Line of Credit Agreement with Sterling National Bank to increase the Sterling Credit Line from $5 million to $7 million, under the same terms as the original line of credit (the "Second Amendment"). Effective on June 24, 2014, the term of the Sterling Credit Line was extended to October 29, 2014. (See Note 8 to the financial statements included elsewhere in this report.) At June 30, 2014, the outstanding amount under the Sterling Credit Line was $6,600,000.

The Company completed a public offering of 1,754,386 common shares at a price to the public of $2.85 per share on July 31, 2014. Gross proceeds raised by the Company in the offering were $5,000,000, before deducting underwriting discounts and commissions and other estimated offering expenses. The Company has granted the underwriters a 45-day option to purchase up to 263,157 additional common shares to cover over-allotments, if any.

The net proceeds from the issuance and sale of our common shares in this offering were approximately $4.3 million (or approximately $5.0 million if the representative exercises its over-allotment option in full), after deducting underwriting discounts and commissions and offering expenses payable by us.

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.

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

Changes to Critical Accounting Policies and Estimates

Our critical accounting polices and estimates are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.


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Source: Edgar Glimpses


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