MANHATTAN BRIDGE CAPITAL, INC - Quarter Report: 2012 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________________________ to ______________________________________

Commission File Number: 000-25991

MANHATTAN BRIDGE CAPITAL, INC.

(Exact name of registrant as specified in its charter)

60 Cutter Mill Road, Great Neck, New York 11021

(Address of principal executive offices)

(516) 444-3400

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                            x Yes    ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x Yes    ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨  Yes    x  No

As of October 29, 2012, the registrant had a total of 4,311,959 shares of Common Stock, $.001 par value per share, outstanding.

Forward Looking Statements

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

PART I.           FINANCIAL INFORMATION

Item 1.           CONSOLIDATED FINANCIAL STATEMENTS

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

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

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

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

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012

The accompanying unaudited consolidated financial statements of Manhattan Bridge Capital, Inc., a New York corporation, (referred to herein as “Manhattan Bridge Capital” “we”, “MBC”, “us” or “our”) have been prepared by the Company in accordance with U.S. generally accepted accounting principles for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2011 and the notes thereto included in the Company’s Form 10-K. Results of consolidated operations for the interim period are not necessarily indicative of the operating results to be attained in the entire fiscal year.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.

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

The Company offers short-term, secured, non–banking loans to real estate investors (also known as hard money) to fund their acquisition and construction of properties located in the New York Metropolitan area.

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

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

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

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

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

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

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

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

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.

Short Term Loans Receivable

The Company offers short-term secured non–banking loans to real estate investors (also known as hard money) to fund their acquisition and construction of properties located in the New York Metropolitan area. The loans are principally secured by collateral consisting of real estate and, generally, accompanied by personal guarantees from the principals of the businesses. The loans are generally for a term of one year. The short term loans are initially recorded, and carried thereafter, in the financial statements at cost. Most of the loans provide for receipt of interest only during the term of the loan and a balloon payment at the end of the term.

At September 30, 2012, we were committed to an additional $2,367,000 in construction loans that can be drawn by the borrower when certain conditions are met.

At September 30, 2012, the Company had made loans to seven borrowers in the aggregate amount of $1,961,000, of which $490,000 is included in long-term loans receivable. One individual holds a fifty percent interest in each of the borrowers. The individual has no relationship to any of the officers or directors of the Company.

At September 30, 2012, three of the loans in the Company’s portfolio were jointly funded by the Company and an unrelated entity, for aggregate loans of $750,000. The accompanying balance sheet includes the Company’s portion of the loans in the amount of $375,000.

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

Long Term Loans Receivable

During 2011, management reclassified a portion of the Company’s short term loans to long term loans receivable. Long term loans receivable comprise the loans that were extended beyond the original maturity dates, unless it is clear that the loan will be repaid within 12 month after the balance sheet date. At September 30, 2012, the Company’s loan portfolio consists of approximately $9,607,000 short term loans and approximately $3,081,000 long term loans receivable.

Credit Risk

Credit risk profile based on loan activity as of September 30, 2012:

At September 30, 2012, the Company’s commercial loans include loans in the amount of $504,700, $597,200 and $750,000, originally due in 2009, 2010 and 2011, respectively. In all instances the borrowers are currently paying their interest and, generally, the Company receives a fee in connection with the extension of the loans. Accordingly, at September 30, 2012, no loan impairments exist and there are no provisions for impairments of loans or recoveries thereof included in operations.

On March 21, 2011, the Company purchased three 2-family buildings located in the Bronx, New York for $675,000, including related costs, and sold to the seller a one year option to buy back the properties for the same price. The buy back option was sold for $3,900, plus a monthly fee of $10,530 payable to the Company by the option holder for the life of the option. On September 28, 2011, the option holder exercised the option to buy back one of the properties for $380,679. The Company had received an aggregate of $70,590 from the sale of the option prior to the partial exercise and, on October 1, 2011, has issued a new one year option for the two remaining properties at an exercise price of $294,321 with a monthly option fee of $4,591 (the “New Option”.) The New Option superseded the buy back option issued in March 2011. On October 21, 2011, the option holder partially exercised the New Option to buy back one of the two remaining properties for $147,500. After the partial exercise of the New Option, the option holder has a continuing option to purchase the one remaining property at an exercise price of $146,821 with a monthly option fee of $2,296. On October 1, 2012, the New Option was extended for an additional 6-month period.

Other income for the nine month periods ended September 30, 2012 and 2011 in the amount of $20,661 and $70,590, respectively, represents the fees generated from the seller buy back options.

Basic and diluted earnings per share are calculated in accordance with ASC 260 “Earnings Per Share”. Under ASC 260, basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the potential dilution from the exercise of stock options and warrants for common shares using the treasury stock method. The numerator in calculating both basic and diluted earnings per common share for each period is the reported net income.

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

For the three and nine month periods ended September 30, 2012, 347,953 and 344,957, stock options were not included in the diluted earnings per share calculation, respectively, either because their effect would have been anti-dilutive, or because they are in escrow (See note 7).

For the three and nine month periods ended September 30, 2011, 334,334 and 328,193, stock options were not included in the diluted earnings per share calculation, respectively, either because their effect would have been anti-dilutive, or because they are in escrow (See note 7).

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

The share based compensation expense included the amortization of the fair value of the restricted shares granted on September 9, 2011, after adjusting for the effect on the fair value of the stock options related to this transaction. The fair value will be amortized over 15 years (See note 7).

Share based compensation expense recognized under ASC 718 for the three and nine months ended September 30, 2012 were $11,575 and $19,304, respectively. Share based compensation expense recognized under ASC 718 for the three and nine months ended September 30, 2011 were $17,107 and $47,862, respectively.

The exercise price of options granted under our stock option plan may not be less than the fair market value on the date of grant. The options may vest over a period not to exceed ten years. Stock options under our stock option plan may be awarded to officers, key-employees, consultants and non-employee directors of the Company. Under our stock option plan, every non-employee director of the Company is granted 7,000 options upon first taking office, and then 7,000 upon each additional year in office. The objectives of our stock option plan include attracting and retaining key personnel, providing for additional performance incentives and promoting the success of the Company by increasing the efforts of such officers, employees, consultants and directors. Our stock option plan is the only plan that the Company has adopted with stock options available for grant.

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average share assumptions used for grants in 2012 and 2011, respectively: (1) expected life of 5 years; (2) no annual dividend yield; (3) expected volatility 72.5% to 74.6%; and (4) risk free interest rate of 0.73% to 1.87%.

The following summarizes stock option activity for the nine month period ended September 30, 2012:

The weighted-average fair value of each option granted during the nine month periods ended September 30, 2012 and 2011, estimated as of the grant date using the Black-Scholes option valuation model, was $0.61 per option and $0.83 per option, respectively.

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

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

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

In 2011, the Company received six short-term loans from five different entities, in the aggregate amount of $1,329,465, bearing interest at rates ranging from 8% to 14%, per annum. During the first and the second quarters of 2012, the Company received three short-term loans from two different entities, in the aggregate amount of $590,000, bearing interest at rates ranging from 10% to 14%, per annum. Some of the short-term loans are secured by certain of the Company’s short term loans, pursuant to a security agreement, and are also personally guaranteed by our CEO. The outstanding balance of such loans as of September 30, 2012 and December 31, 2011, is $959,465 and $1,159,465, respectively.

In 2011, Mr. Ran, our CEO, made four separate short-term loans to the Company in amounts ranging from $20,000 to $100,000, at an interest rate of 12% per annum. All of these loans were repaid by the Company as of December 31, 2011. The aggregate interest expense for these loans was $455. During the first and the second quarters of 2012, Mr. Ran made six short-term loans to the Company in amounts ranging from $25,000 to $115,000, bearing interest at rates ranging from 6% to 12%, per annum. All of these loans were repaid in full by the Company by June 30, 2012. The aggregate interest expense for these loans was $3,762.

On May 2, 2012, the Company entered into a 1-year revolving Line of Credit Agreement with Sterling National Bank pursuant to which the Bank has agreed to advance up to $3.5 million against assignments of mortgages and other collateral (the “Sterling Credit Line”). The Sterling Credit Line was conditioned on an unlimited personal guarantee from Assaf Ran, the Company’s CEO. The interest rate on the Sterling Credit Line is 2% in excess of the Wall Street Journal prime rate, but in no event less than 6%, per annum, on the money in use. Total initiation costs for the Sterling Credit Line were approximately $16,000. These costs are being amortized over one year, using the straight-line method. The amortization costs for the three and nine month periods ended September 30, 2012 were $4,006 and $6,677, respectively. At September 30, 2012, the outstanding balance of Sterling Credit Line is $3,150,000.

On December 28, 2010, MBC Funding completed a $500,000 private placement of three-year 6.63% senior secured notes. In connection therewith, MBC assigned approximately $775,000 of its commercial loans to MBC Funding to use as collateral for the notes. Pursuant to the agreement, MBC has also guaranteed the repayment of the notes. The notes require quarterly payments of interest only through the expiration date in December 2013, at which time the notes become due. The private placement was the initial tranche of a $5,000,000 offering which expired on March 31, 2011, which is no longer being marketed by the underwriter (Paulson).

Financing costs incurred in connection with the agreement totaled $109,183, including five year warrants (the “warrants”) to purchase 20,000 shares of the Company’s Common Stock issued to the underwriter at $2.50 per share, which were valued at $11,683. These costs are amortized over the life of the senior secured notes. The amortization costs for the three and nine month periods ended September 30, 2012 were $9,099 and $27,296, respectively.

 Certain 2011 account balances have been reclassified to conform with the current year’s presentation.

Operating Lease

On June 9, 2011, the Company entered into a new lease agreement (the “Lease’) to relocate its corporate headquarters to 60 Cutter Mill Road, Great Neck, New York.  The Lease is for a term of 5 years and two months commencing June 2011 and ending August 2016.  The rent increases annually during the term and ranges from approximately $2,800 per month during the first year to $3,200 per month during the fifth year.

Derivative Action

On November 7, 2011, the Company was sued as a nominal defendant in a stockholder derivative action, Alan R. Kahn v. Assaf Ran, et al., Supreme Court of the State of New York, County of Nassau, filed against the members of its Board of Directors (the "Directors"). The plaintiff, who states that he was a stockholder of the Company at all pertinent times, alleges wrongdoing by the Directors in a transaction in which Mr. Ran, our CEO and a director, was granted one million shares of the Company's restricted stock in exchange for giving up his rights to options covering 490,000 shares of the Company's common stock that he had held at the time of the transaction, as well as to seek future stock option grants from the Company. The plaintiff asserts that the Company was harmed by the transaction. The Directors disagree with the plaintiff's allegations, and they moved to dismiss the complaint on January 27, 2012. Following briefing and oral argument, the court issued a ruling on June 12, 2012, in which it granted the motion to dismiss, but gave the plaintiff permission to file an amended complaint.

The plaintiff filed an amended complaint on July 12, 2012. The amended complaint makes the same substantive allegations as those included in the original complaint. The Directors filed a motion to dismiss the amended complaint on August 22, 2012.  The court will rule on the motion to dismiss the amended complaint in due course. If the case goes forward after the court rules on that motion, the Directors intend to defend vigorously against the plaintiff's claims.

The Directors are insured under an officers' and directors' liability insurance policy which has a $75,000 self-insured retention that must be satisfied by the Company before the insurance policy will begin to pay defense costs. Because the action is a derivative claim alleging harm to the Company, any award would be paid to the Company, not by the Company, in the event that the plaintiff was successful on the merits of his claims.

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.

The Company offers short-term, secured, non–banking loans to real estate investors (also known as hard money) to fund their acquisition and construction of properties located in the New York Metropolitan area. The loans are principally secured by collateral consisting of real estate and, generally, accompanied by personal guarantees from the principals of the businesses. The loans are generally for a term of one year. Most of the loans provide for receipt of interest only during the term of the loan and a balloon payment at the end of the term. For the nine month periods ended September 30, 2012 and 2011 the total amounts of $11,148,500 and $6,504,036 have been lent, offset by collections received from borrowers, under the Company’s commercial loans in the amount of $7,874,691 and $6,212,018, respectively. Loans ranging in size from $50,000 to $1,100,000 were concluded at stated interest rates of 12% to 16%, but often at higher effective rates based upon points or other up-front fees.

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

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

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-collectable in the future.

At September 30, 2012, we were committed to an additional $2,367,000 in construction loans that can be drawn by the borrower when certain conditions are met.

Results of Operations

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Revenue

Total revenues for the three month period ended September 30, 2012 were approximately $491,000 compared to approximately $351,000 for the three month period ended September 30, 2011, an increase of $140,000 or 39.9%. The increase in revenue represents an increase in lending operations. For the three month period ended September 30, 2012, $402,000 of our revenue represents interest income on the secured commercial loans that we offer to small businesses compared to $284,000 for the same period in 2011, and $89,000 represents origination fees on such loans compared to $67,000 for the same period in 2011. The loans are principally secured by collateral consisting of real estate and, generally, accompanied by personal guarantees from the principals of the businesses.

Interest and amortization of debt service costs

Interest and amortization of debt service costs for the three month period ended September 30, 2012 was $87,000 compared to $49,000 for the three month period ended September 30, 2011. The increase in interest and amortization of debt service costs is primarily attributable to the Company’s receipt of short term loans and a line of credit in order to increase our ability to make loans. (See also Notes 8 and 9 to the financial statements included elsewhere in this report).

Referral fees

Referral fees for the three month periods ended September 30, 2012 and 2011 were approximately $1,000 each. The referral fees represent fees paid on such loans which amortize over the life of the loan.

General and administrative expenses

General and administrative expenses for the three month period ended September 30, 2012 were approximately $184,000 compared to approximately $195,000 for the three month period ended September 30, 2011. This decrease is primarily attributable to decreases in relocation-related expenses and in stock based compensation expense resulting from the forfeit of options and the agreement by the CEO not to exercise additional options partially offset by the issuance of shares of restricted stock to our CEO (See Note 7 to the financial statements included elsewhere in this report), offset by the increase in legal expenses resulting from the derivative action (See Note 11 to the financial statements included elsewhere in this report).

Other income

Other income for the three month periods ended September 30, 2012 and 2011 was approximately $7,000 and $32,000, respectively, 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

For the three month period ended September 30, 2012 we had income tax expense of $65,000 compared to $41,000 for the three month period ended September 30, 2011.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Revenue

Total revenues for the nine month period ended September 30, 2012 were approximately $1,298,000 compared to approximately $1,031,000 for the nine month period ended September 30, 2011, an increase of $267,000, or 25.9%. The increase in revenue represents an increase in lending operations. Revenue of approximately $1,042,000 for the nine month period ended September 30, 2012, compared to approximately $842,000 for the same period in 2011, represents interest income on the secured commercial loans that we offer to small businesses, and $256,000 represents origination fees on such loans compared to $189,000 for the same period in 2011. The loans are principally secured by collateral consisting of real estate and, generally, accompanied by personal guarantees from the principals of the businesses.

Interest and amortization of debt service costs

Interest and amortization of debt service costs for the nine month period ended September 30, 2012 was approximately $187,000 compared to $112,000 for the nine month period ended September 30, 2011. The increase in interest and amortization of debt service costs is primarily attributable to the Company’s receipt of short term loans and a line of credit in order to increase our ability to make loans (See also Notes 8 and 9 to the financial statements included elsewhere in this report).

Referral fees

Referral fees for the nine month period ended September 30, 2012 were approximately $5,000 compared to approximately $2,000 for the nine month period ended September 30, 2011. The referral fees represent fees paid on such loans which amortize over the life of the loan.

General and administrative expenses

General and administrative expenses for the nine month period ended September 30, 2012 were approximately $548,000 compared to approximately $566,000 for the nine month period ended September 30, 2011. This decrease is primarily attributable to decreases in office rent and in stock based compensation expense resulting from the forfeit of options and the agreement by the CEO not to exercise additional options partially offset by the issuance of shares of restricted stock to our CEO (See Note 7 to the financial statements included elsewhere in this report), offset by the increase in legal expenses resulting from the derivative action (See Notes 11 to the financial statements included elsewhere in this report).

Other income

 Other income for the nine month periods ended September 30, 2012 and 2011 was approximately $21,000 and $71,000, respectively, 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

 For the nine month period ended September 30, 2012 we had income tax expense of approximately $222,000 compared to $157,000 for the nine month period ended September 30, 2011.

Liquidity and Capital Resources

On May 2, 2012, the Company entered into a Line of Credit Agreement with Sterling National Bank pursuant to which the Bank has agreed to advance up to $3.5 million against assignments of mortgages and other collateral (the “Sterling Credit Line”). The Sterling Credit Line was conditioned on an unlimited personal guarantee from Assaf Ran, the Company’s CEO. The interest rate on the Sterling Credit Line is 2% in excess of the Wall Street Journal prime rate, but in no event less than 6%, per annum, on the money in use.

At September 30, 2012, we had cash and cash equivalents of approximately $208,000 and working capital of approximately $5,572,000 as compared to cash and cash equivalents of approximately $222,000 and working capital of approximately $5,763,000 at December 31, 2011. 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 certain short term loans to long term loans receivable.

For the nine month periods ended September 30, 2012 and 2011, net cash provided by operating activities were approximately $313,000 and $304,000, respectively. The increase in net cash provided by operating activities primarily results from increases in net income and in income taxes payable, offset by a decrease in non cash compensation expense and increases in interest receivable on loans and in other current and non current assets.

Net cash used in investing activities was approximately $3,274,000 for the nine months ended September 30, 2012, compared to net cash used in investing activities of approximately $586,000 for the period ended September 30, 2011. Net cash used in investing activities for the nine months ended September 30, 2012 consisted primarily of the issuance of the our short term commercial loans in the amount of approximately $11,149,000, offset by collection of these loans in the amount of approximately $7,875,000. In the period ended September 30, 2011 net cash used in investing activities consisted primarily of the issuance of the our short term commercial loans in the amount of approximately $6,504,000, offset by collection of these loans in the amount of approximately $6,212,000 and the investment in real estate in the amount of $675,000, which was offset by the proceeds of approximately $381,000 upon the partial exercise of option by the option holder.

Net cash provided by financing activities for the nine months ended September 30, 2012 was approximately $2,947,000 as compared to $1,159,000 for the period ended September 30, 2011. This increase reflects the use of the Sterling Credit Line, offset by the purchase of treasury shares and repaying some of the Company’s short-term loans (See note 8 to the consolidated financial statements which appear elsewhere in this quarterly report).

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

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

Changes to Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

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

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2012 (the “Evaluation Date”). Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) are accumulated and communicated to our management, including its chief executive and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) that occurred during the fiscal quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II-OTHER INFORMATION

On November 7, 2011, the Company was sued as a nominal defendant in a stockholder derivative action, Alan R. Kahn v. Assaf Ran, et al., Supreme Court of the State of New York, County of Nassau, filed against the members of its Board of Directors (the "Directors"). The plaintiff, who states that he was a stockholder of the Company at all pertinent times, alleges wrongdoing by the Directors in a transaction in which Mr. Ran, our CEO and a director, was granted one million shares of the Company's restricted stock in exchange for giving up his rights to options covering 490,000 shares of the Company's common stock that he had held at the time of the transaction, as well as to seek future stock option grants from the Company. The plaintiff asserts that the Company was harmed by the transaction. The Directors disagree with the plaintiff's allegations, and they moved to dismiss the complaint on January 27, 2012. Following briefing and oral argument, the court issued a ruling on June 12, 2012, in which it granted the motion to dismiss, but gave the plaintiff permission to file an amended complaint.

The plaintiff filed an amended complaint on July 12, 2012. The amended complaint makes the same substantive allegations as those included in the original complaint. The Directors filed a motion to dismiss the amended complaint on August 22, 2012.  The court will rule on the motion to dismiss the amended complaint in due course. If the case goes forward after the court rules on that motion, the Directors intend to defend vigorously against the plaintiff's claims.

The Directors are insured under an officers' and directors' liability insurance policy which has a $75,000 self-insured retention that must be satisfied by the Company before the insurance policy will begin to pay defense costs. Because the action is a derivative claim alleging harm to the Company, any award would be paid to the Company, not by the Company, in the event that the plaintiff was successful on the merits of his claims.

In September 2012, the Company adopted a stock buy-back program for the repurchase of up to 100,000 shares of the Company's common stock. As set forth in the table below, during the quarter ended September 30, 2012, the Company repurchased 2,500 shares of the Company's common stock under the stock buy-back program at a cost of approximately $2,600.

ISSUER PURCHASES OF EQUITY SECURITIES

SIGNATURES

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