As filed with the Securities and Exchange Commission on July 22, 2014

Registration Statement No. 333-196167

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

AMENDMENT NO. 2 TO
FORM S-11
FOR REGISTRATION
UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES



 

Manhattan Bridge Capital, Inc.

( Exact name of registrant as specified in its governing instruments )



 

   
New York   6798   11-3474831
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)


 

60 Cutter Mill Road, Suite 205
Great Neck, New York 11021
(516) 444-3400

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)



 

Assaf Ran
Chief Executive Officer
Manhattan Bridge Capital, Inc.
60 Cutter Mill Road, Suite 205
Great Neck, New York 11021
(516) 444-3400

(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)



 

Please send all copies of communications to :

 
Stephen A. Zelnick, Esq.
Morse, Zelnick, Rose, & Lander, LLP
825 Third Avenue
New York, NY 10022
Tel: (212) 838-8040
Fax: (212) 208-6809
  Brad L. Shiffman, Esq.
Blank Rome LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174-0208
Tel: (212) 885-5000
Fax: (212) 885-5001


 

Approximate date of commencement of proposed sale to the public : As soon as practicable after the effective date of this registration statement.

If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o

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. (Check One):

     
Large accelerated filer o   Accelerated filer o   Non-accelerated filer o
  Smaller Reporting Company x
(Do not check if a smaller reporting company)

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 


 
 

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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is deemed effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

   
PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION   DATED JULY 22, 2014

2,830,000 Common Shares

[GRAPHIC MISSING]

This is a firm commitment offering of 2,830,000 common shares of Manhattan Bridge Capital, Inc.

Our common shares are currently listed on the NASDAQ Capital market (“Nasdaq”) and trade under the symbol “LOAN.” The closing price for a common share on July 8, 2014 was $3.53.

We intend to elect to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes, beginning with our taxable year ending December 31, 2014 or as soon as possible thereafter. To assist us in qualifying as a REIT, we will amend our certificate of incorporation to prohibit any shareholder, other than Assaf Ran, our chief executive officer, from owning, applying the rules of constructive ownership, more than a fixed percentage by value or number of shares, whichever is more restrictive, of our outstanding capital stock. The limitation will be between 3% and 7% and will be determined by our board of directors at the time we file our restated certificate of incorporation. In addition, our restated certificate of incorporation will contain various other restrictions on the ownership and transfer of our common shares. In June 2014, we announced an increase in our annual dividend to $0.28 per common share payable in quarterly installments, which commenced on July 15, 2014. We intend to maintain this annual dividend until the earlier of twelve months following completion of this offering or the effective date of our REIT election, unless actual results of operations, economic conditions or other factors differ materially from our historical operating results or our current assumptions.

Investing in our common shares involves a high degree of risk. See “Risk Factors” beginning on page 12 of this prospectus for a discussion of information that should be considered with an investment in our common shares.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

   
  Per Share   Total
Public offering price   $              $             
Underwriting discounts and commissions (1)   $              $             
(1) Does not include a non-accountable expense allowance equal to 1% of the gross proceeds of this offering payable to Aegis Capital Corp., the representative of the underwriters. See “Underwriting” for a description of the compensation payable to the underwriters.

We have granted the representative a 45-day option to purchase up to 424,500 additional common shares to cover overallotments, if any.

The underwriters expect to deliver our shares to purchasers in the offering on or about            , 2014.

Aegis Capital Corp

           , 2014.


 
 

TABLE OF CONTENTS

TABLE OF CONTENTS

 
SUMMARY     1  
RISK FACTORS     12  
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS     32  
USE OF PROCEEDS     33  
MARKET PRICE OF AND DIVIDENDS ON COMMON SHARES     34  
DIVIDENDS AND DISTRIBUTION POLICY     35  
DILUTION     36  
CAPITALIZATION     37  
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION     38  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION     40  
BUSINESS     49  
CORPORATE STRUCTURE — REIT STATUS     58  
MANAGEMENT     59  
EXECUTIVE COMPENSATION     62  
PRINCIPAL SHAREHOLDERS     66  
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS     67  
DESCRIPTION OF CAPITAL STOCK     68  
CERTAIN PROVISIONS OF NEW YORK LAW AND OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS     73  
SHARES ELIGIBLE FOR FUTURE SALE     76  
U.S. FEDERAL INCOME TAX CONSIDERATIONS     77  
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES     95  
UNDERWRITING     97  
LEGAL MATTERS     104  
EXPERTS     104  
WHERE YOU CAN FIND ADDITIONAL INFORMATION     104  
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS     F-1  

You should rely only on the information contained in this prospectus or in any free writing prospectus that we may specifically authorize to be delivered or made available to you. We have not, and the underwriters have not, authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may only be used where it is legal to offer and sell our securities. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted.

For investors outside the United States: We have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of securities and the distribution of this prospectus outside the United States.

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SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our securities, you should carefully read this entire prospectus, including our financial statements and the related notes and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each case included elsewhere in this prospectus.

All references in this prospectus to “us,” “we,” or “our,” are references to Manhattan Bridge Capital, Inc. and its wholly-owned subsidiaries, 1490 – 1496 Hicks, LLC, DAG Funding Solutions, Inc. and MBC Funding-I, Inc., unless specified to the contrary. MBC Funding-I, Inc. is inactive at this time.

Our Company

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. We intend to elect to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes, beginning with our taxable year ending December 31, 2014, or as soon as possible thereafter. In June 2014, we increased our annual dividend to $0.28 per common share payable in quarterly installments, which commenced on July 15, 2014. We intend to maintain our latest annual dividend until the earlier of twelve months following completion of this offering or the effective date of our REIT election, unless actual results of operations, economic conditions or other factors differ materially from our historical operating results or our current assumptions.

The properties securing our 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 may be collaterally secured by a pledge of the guarantor’s interest in the borrower. The face amounts of the loans we originate historically have ranged from $14,000 to a maximum of $1.3 million. Our board of directors recently 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) $1.4 million. Our loans typically have a maximum initial term of one year and bear interest at a flat rate of 12% to 15% per year. In addition, we usually receive origination fees, or “points,” ranging from 1% to 3% 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, typically 80% of construction costs.

Since commencing this business in 2007, we have never had to foreclose 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. When we renew or extend a loan we generally receive additional “points” and other fees.

Our 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. 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, mortgage brokers and banks and a limited amount of newspaper advertising and direct mail.

Our Competitive Strengths

We believe our competitive advantages include the following:

Experienced management team.    Our chief executive officer and chief financial officer have successfully originated and serviced a portfolio of short-term, real estate mortgage loans generating attractive annual returns under varying economic and real estate market conditions.

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Long-standing relationships.   A significant portion of our business comes from repeat customers with whom we have long-standing relationships. These customers also refer new leads to us.
Knowledge of the market.   We have intimate knowledge of the New York metropolitan area real estate market, which enhances our ability to identify attractive opportunities and helps distinguish us from many of our competitors.
Disciplined lending.   We utilize rigorous underwriting and loan closing procedures that include numerous checks and balances to evaluate the risks and merits of each potential transaction.
Vertically-integrated loan origination platform.   We manage and control the loan process from origination through closing with our own personnel or independent third parties, including legal counsel and appraisers, with whom we have long relationships.
Structuring flexibility.   As a small, non-bank, neighborhood-focused 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.
No legacy issues.   Unlike many of our competitors, we are not burdened by distressed legacy real estate assets.

Market Opportunity

We believe there is a significant market opportunity for a well-capitalized “hard money” lender to originate attractively priced loans to small scale real estate developers with strong credit fundamentals, particularly in the New York metropolitan area where real estate values in many neighborhoods are rapidly rising and substandard properties are being improved, rehabilitated and renovated. We also believe these developers would prefer to borrow from us rather than other lending sources because of our flexibility in structuring loans to suit their needs and our ability to close quickly. This opportunity has been enhanced by the continuing reluctance of many banks and large commercial lenders to make real estate loans to other than the most credit-worthy borrowers because of their diminished balance sheet capacity or tightened mortgage underwriting standards.

Our Strategy

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, managing and servicing a portfolio of first mortgage real estate loans 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 opportunities that may arise from time to time, whether they relate to the mortgage market or to 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 lack of 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
operate so as to qualify as a REIT and for an exemption from registration under the Investment Company Act.

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Leverage Policies/Financing Strategy

We have a $7.7 million line of credit with Sterling National Bank, currently bearing interest at 6.0% per annum on the outstanding balance, which we can draw upon, from time to time, to make loans. The maximum amount we can draw upon under the line of credit decreases to $7.0 million on August 14, 2014 and we must repay any excess amount outstanding on that date. Amounts outstanding under the credit line bear interest at a rate equal to the greater of (i) the prime rate plus 2.0% and (ii) 6.0%. The credit line expires on November 1, 2014. As of the date of this prospectus, the outstanding balance on the credit line is $7.7 million. The outstanding balance on the credit line at March 31, 2014 was $5.3 million. Prior to Sterling, we had a $300,000 credit line with Valley National Bank, which we paid off in 2011. In addition, over the last five years we have raised approximately $2.7 million from the sale of short- and medium-term notes of which $2.2 million are outstanding as of the date of this prospectus and $1.3 million were outstanding at each of December 31, 2013 and March 31, 2014, respectively. Depending on various factors we may, in the future, decide to take on additional debt to expand our mortgage loan origination activities in order to increase the potential returns to our shareholders. Although we have no pre-set guidelines in terms of leverage ratio, the amount of leverage we will deploy will depend on our assessment of a variety of factors, which may include the liquidity of the real estate market in which most of our collateral is located, employment rates, general economic conditions, the cost of funds relative to the yield curve, the potential for losses and extension risk in our portfolio, the gap between the duration of our assets and liabilities, our opinion of the creditworthiness of our borrowers, the value of the collateral underlying our portfolio, and our outlook for interest rates and property values. We intend to use leverage for the sole purpose of financing our portfolio and not for the purpose of speculating on changes in interest rates.

Loan Origination and Underwriting Process

We will continue to focus on originating short-term first mortgage loans. We will continue to be responsible for each stage of the investment process, which includes: (1) sourcing deals from the brokerage community and directly from real estate owners, operators, developers and investors; (2) performing due diligence with respect to underwriting the loans; (3) undertaking risk management with respect to each loan and our aggregate portfolio; (4) executing the closing of the loan; and (5) managing the loan post-closing.

After identifying a particular lending opportunity, we perform financial, operational, credit and legal due diligence and evaluate the credit worthiness of the borrower and its principals who will guaranty the loan to assess the risks of the investment. We analyze the opportunity and conduct follow-up due diligence as part of the underwriting process. As part of this process, the key factors that we consider include, but are not limited to, transactional documentation, debt-to-income ratios, loan-to-value ratios, the location of the property and property valuation. In evaluating the merits of any particular proposed loan transaction, we will also evaluate the impact of each loan transaction on our existing loan portfolio. In particular, we will need to consider whether the new loan would cause our portfolio to be too heavily concentrated with, or cause too much risk exposure to, any one borrower, class of real estate, neighborhood, or other issues. If we determine that a proposed investment presents excessive concentration risk, we may decide to forego the opportunity. As a REIT, we will also need to determine the impact of each loan transaction on our ability to maintain our REIT qualification.

Summary Risk Factors

An investment in our common shares involves various risks. You should consider carefully the risks discussed below and under the heading “Risk Factors” beginning on page 12 of this prospectus before purchasing our common shares. If any of these risks occur, our business, financial condition, liquidity, results of operations, prospects and ability to make distributions to our shareholders could be materially and adversely affected. In that case, the trading price of our common shares could decline, and you may lose some or all of your investment.

We have a no operating history as a REIT.
Our loan origination activities, revenues and profits are limited by available funds.
We operate in a highly competitive market and competition may limit our ability to originate loans with favorable interest rates.

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We may change our investment, leverage, financing and operating strategies, policies or procedures without shareholder consent.
Management has broad authority to make lending decisions.
Our chief executive officer is critical to our business and our future success may depend on our ability to retain him.
Terrorist attacks and other acts of violence or war may affect the real estate industry generally and our business, financial condition and results of operations.
Security breaches and other disruptions could compromise and expose us to liability.
If we overestimate the yields on our loans or incorrectly value the collateral securing the loan, we may experience losses.
Difficult conditions in the markets for mortgages and mortgage-related assets as well as the broader financial markets have resulted in a significant contraction in liquidity for mortgages and mortgage-related assets.
Short-term loans may involve a greater risk of loss than traditional mortgage loans.
We may be subject to “lender liability” claims.
An increase in the rate of prepayment rates may have an adverse impact on the value of our portfolio as well as our revenue and income.
Our loan portfolio is illiquid.
The geographic concentration of our loan portfolio may make our revenues and the values of the mortgages and real estate securing our portfolio vulnerable to adverse changes in economic conditions in the New York metropolitan area.
A prolonged economic slowdown, a lengthy or severe recession or continued declining real estate values could impair our investments and harm our operations.
We do not carry loan loss reserves.
Our due diligence may not uncover all of a borrower’s liabilities or other risks to its business.
Loans to investors have greater risks than loans to homeowners.
Values of multi-family and commercial properties are volatile.
In the event of a default we may not be able to enforce our rights.
We do not require borrowers to fund an interest reserve.
Interest rate fluctuations could reduce our income.
Liability relating to environmental matters may impact the value of properties that we may acquire or the properties underlying our investments.
Our real estate assets are subject to risks particular to real property.
Defaults on our loans may cause declines in revenues and net income.
Our revenues and the value of our portfolio may be negatively affected by casualty events occurring on properties securing our loans.
Borrower concentration could lead to significant losses.
Our existing credit line is about to expire and any replacement facility may contain restrictive covenants relating to our operations, which may inhibit our ability to grow our business and increase revenues, and require us to provide additional collateral or pay down debt.

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Our access to financing may be limited and thus our ability to maximize our returns may be adversely affected.
Restrictive covenants in our credit line may inhibit our growth.
Our use of leverage may adversely affect the return on our assets and may reduce cash available for distribution to our shareholders, as well as increase losses when economic conditions are unfavorable.
Our management has no experience managing a REIT and limited experience managing a portfolio of assets in the manner necessary to maintain an exemption under the Investment Company Act.
Complying with REIT requirements may hinder our ability to maximize profits, which would reduce the amount of cash available to be distributed to our shareholders.
If we fail to qualify or remain qualified as a REIT we would be subject us to U.S. federal income tax and applicable state and local taxes.
REIT distribution requirements could adversely affect our ability to execute our business plan and may require us to incur debt or sell assets to make such distributions.
Even if we qualify as a REIT, we may face tax liabilities that reduce our cash flow.
Our qualification as a REIT may depend on the accuracy of legal opinions or advice rendered or given and the inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax.
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.
Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations, which could adversely affect the value of our shares.
Liquidation of our assets may jeopardize our REIT qualification.
The ownership limitation in our restated certificate of incorporation may not prevent five or fewer shareholders from acquiring control.
The share ownership limits that apply to REITs, as prescribed by the Code and by our charter may inhibit market activity in our common shares and restrict our business combination opportunities.
The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans that would be treated as sales for U.S. federal income tax purposes.
We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of shares of our common shares.
We may not generate sufficient cash to satisfy the REIT distribution requirements.
We could be materially and adversely affected if we cannot qualify for an exemption from the Investment Company Act.
Our common shares are thinly traded.
After this offering we will still be effectively controlled by one shareholder.

Our Organizational Structure

We were organized as a New York corporation in February 1999 under the name DAG Media Inc. Following the sale of substantially all of our operating assets in 2006, we repositioned ourselves as a real estate finance company and, in 2008, changed our name to Manhattan Bridge Capital, Inc.

We currently operate as a C-corporation for tax purposes. As a result, we have been able to re-invest our net after-tax profits back into our business. However, we believe that it would be in the best interests of our

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shareholders if we operated as a real estate investment trust (REIT) for U.S. federal income tax purposes. As a REIT, we will be able to distribute more of our profits to our shareholders. We intend to elect REIT status beginning with our tax year ending December 31, 2014 or as soon as possible thereafter and to maintain this status for the foreseeable future. We cannot assure you that we will qualify as a REIT or that, even if we do qualify initially, we will be able to maintain REIT status for any particular period of time. We also intend to operate our business in a manner that will permit us to maintain an exemption from registration under the Investment Company Act.

REIT Qualification

Our qualification as a REIT depends on our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Internal Revenue Code of 1986, as amended, or the Code, relating to, among other things, the sources of our gross income, the composition and values of our assets, our compliance with the distributions requirements applicable to REITs and the diversity of ownership of our outstanding common shares. Prior to this offering, we believe that we meet all the requirements of a REIT except for the ownership diversity requirement. One of the principal purposes of this offering is to overcome this obstacle. Ultimately, whether or not we satisfy the diversity of ownership requirement will depend on how many common shares we sell in this offering and the distribution of the shares among the various investors in the offering. In light of that, we cannot assure you that we will qualify as a REIT after the offering is completed. Furthermore, given that our chief executive officer will continue to own a significant portion of our outstanding common shares after this offering and the limited number of outstanding common shares and the trading volume of our stock on NASDAQ, we cannot assure you that, even if we do qualify as a REIT immediately after this offering, we will be able to maintain that qualification.

So long as we qualify as a REIT, we, generally, will not be subject to U.S. federal income tax on our taxable income that we distribute currently to our shareholders. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we lose our REIT qualification. Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income or property.

Distribution Policy

U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. We intend to pay regular quarterly dividends in an amount equal to our taxable income. Any distributions we make to our shareholders will be at the discretion of our board of directors and will depend on, among other things, our actual results of operations and liquidity. These results and our ability to pay distributions will be affected by various factors, including the net interest and other income from our portfolio, our operating expenses and other expenditures. For more information, see “Distribution Policy.”

In addition, in order to comply with certain REIT qualification requirements, we will, before the end of any REIT taxable year in which we have accumulated earnings and profits attributable to a non-REIT year, declare a dividend to our shareholders to distribute such accumulated earnings and profits (a “Purging Distribution”). As of January 1, 2014 we had no accumulated earnings and profits.

Restrictions on Ownership of our Common Shares

To assist us in complying with the limitations on the concentration of ownership of a REIT imposed by the Code, we will amend our certificate of incorporation as follows:

To prohibit any shareholder from beneficially or constructively owning, applying certain attribution rules under the Code, more than a fixed percentage by value or number of shares, whichever is more restrictive, of our outstanding capital stock. The limitation will be between 3% and 7% and will be determined by our board of directors at the time we file our restated certificate of incorporation. Assaf Ran, currently our chief executive officer will be exempt from this restriction. Immediately before this offering Mr. Ran owns 58.1% of our outstanding shares and upon completion of this offering, assuming we sell 2,830,000 shares in the offering, he will own 35.1% of our outstanding

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common shares. In addition, our board of directors may, in its sole discretion, waive the ownership limit with respect to a particular shareholder if it is presented with evidence satisfactory to it that such ownership will not then or in the future jeopardize our qualification as a REIT.
To prohibit any person from transferring shares of our capital stock if, as a result of such transfer, we would have fewer than 100 shareholders.
That any ownership or purported transfer of our capital stock in violation of the foregoing restrictions will result in the shares so owned or transferred being automatically transferred to a charitable trust for the benefit of a charitable beneficiary, and the purported owner or transferee acquiring no rights in those shares. If a transfer to a charitable trust would be ineffective for any reason to prevent a violation of the restriction, the transfer resulting in the violation will be void from the time of the purported transfer.

These ownership limitations could delay or prevent a transaction or a change in control of us that might involve a premium price for shares of our capital stock or otherwise be in the best interests of our shareholders.

Investment Company Act Exemption

We intend to conduct our operations so that we are not required to register as an investment company under 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 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. We will rely on the exception set forth in Section 3(c)(5)(C) of the Investment Company Act that 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.” The SEC generally requires that, for the exception provided by Section 3(c)(5)(C) to be available, 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 additional qualifying interests or real estate-type interests (with no more than 20% of the entity’s assets comprised of miscellaneous assets). At the present time, we qualify for the exemption 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 qualify as an “investment company” and be required to register as such under the Investment Company Act, which could have a material adverse effect on us.

Corporate Information

Our principal executive offices are located at 60 Cutter Mill Road, Suite 205, Great Neck, New York 11021, and our telephone number is (516) 444-3400. The URL for our website is www.manhattanbridgecapital.com . The information contained on or connected to our website is not incorporated by reference into, and you must not consider the information to be a part of, this prospectus.

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The Offering

Common Shares Offered By Us    
    2,830,000 shares
Over-allotment Option    
    We have granted the representative a 45-day option to purchase up to 424,500 common shares to cover over-allotments, if any.
Common Shares Outstanding After This Offering*    
    7,135,190 shares. If the representative’s over-allotment option is exercised in full, the total number of common shares outstanding immediately after this offering will be 7,559,690.
Use of Proceeds    
    We estimate that the net proceeds from this offering will be approximately $8.9 million (or approximately $10.3 million if the representative’s option to purchase additional shares is exercised in full), after deducting underwriting discounts and commissions and our estimated offering expenses payable by us. We intend to use the net proceeds from this offering to increase, expand and broaden our loan portfolio and for working capital and other general corporate purposes. If we cannot extend or refinance the Sterling credit line, we may use a portion of net proceeds to pay off the outstanding balance owed to Sterling. Actual allocation of the proceeds of the offering will ultimately be determined by management based on its assessment of the long-term prospects of the business and real estate markets and individual evaluation of investment opportunities.
    Pending the application of any portion of the net proceeds, we will invest such funds in interest bearing accounts and short-term, interest bearing securities that are consistent with our intention to qualify as a REIT and maintain our exemption from registration under the Investment Company Act. These investments are expected to provide lower returns than those we will seek to achieve from our loan portfolio.
Ownership Limit    
    Prior to or simultaneously with this offering, we will amend our certificate of incorporation to restrict any shareholder from owning, actually, beneficially or constructively, more than a fixed percentage of our outstanding shares of capital stock or by value or number of shares, whichever is more restrictive, in order to protect our status as a REIT. The limitation will be between 3% and 7% and will be determined by our board of directors at the time we file our restated certificate of incorporation. Assaf Ran, our chief executive officer will be exempt from this restriction. Immediately prior to this offering Mr. Ran owns 58.1% of our outstanding common shares and, assuming we sell 2,830,000 shares in this offering, will own approximately 35.1% of our outstanding common shares immediately after this offering. In addition, our board of directors may, in its sole discretion, waive the ownership limit with respect to a particular shareholder if it is presented with evidence satisfactory to it that such ownership will not then or in the future jeopardize our qualification as a REIT. See “Description of Capital Stock — Restrictions on Ownership and Transfer” in this prospectus.
Nasdaq Capital Market Symbol    
    LOAN

* Reflects issuance of 49,000 common shares issued after March 31, 2014 upon exercise of stock options.

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Risk Factors    
    An investment in our common stock involves risks, and prospective investors should carefully consider the matters discussed under “Risk Factors” beginning on page 12 of this prospectus and the reports we file with the SEC pursuant to the Securities and Exchange Act of 1934 as amended, (the “Exchange Act”) before making a decision to invest in our common shares.

Unless we indicate otherwise, all information in this prospectus:

excludes 135,000 common shares issuable upon exercise of options and warrants outstanding as of the date of this prospectus;
excludes 141,500 common shares issuable upon exercise of the representative’s warrants; and
assumes no exercise of the over-allotment option granted to the representative.

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Summary Financial Data

The following tables set forth our summary historical consolidated financial information and other data at the dates and for the periods indicated. The statements of operating data for the years ended December 31, 2013 and 2012 and balance sheet data as of December 31, 2013 are derived from our audited consolidated financial statements and related notes included in this prospectus. The statements of operating data for the three months ended March 31, 2014 and 2013 and the balance sheet data as of March 31, 2014 have been derived from our unaudited financial statements appearing elsewhere in this prospectus. This unaudited interim financial information has been prepared on the same basis as our audited financial statements and, in our opinion, reflects all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position as of March 31, 2014 and operating results for the periods ended March 31, 2014 and 2013.

The following summary historical consolidated financial information and other data are qualified in their entirety by reference to, and should be read in conjunction with, our audited consolidated financial statements and related notes and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Selected Historical Consolidated Financial Information,” and other financial information included in this prospectus. Historical results included below and elsewhere in this prospectus are not necessarily indicative of our future performance and the results for any interim period are not necessarily indicative of the operating results to be expected for the full fiscal year.

Statement of Operations Data:

       
  Year Ended
December 31,
  Three Months Ended
March 31,
     2013   2012   2014   2013
               (unaudited)
Interest income   $ 1,858,033     $ 1,475,800     $ 507,371     $ 444,779  
Origination fees   $ 401,514     $ 339,767     $ 101,539     $ 89,582  
Total revenue   $ 2,259,547     $ 1,815,567     $ 608,910     $ 534,361  
Total operating costs and expenses   $ 1,282,128     $ 1,151,185     $ 292,528     $ 276,109  
Income from operations   $ 977,419     $ 664,382     $ 316,382     $ 258,252  
Net income   $ 582,967     $ 388,610     $ 208,269     $ 173,139  
Net income per share – basic and diluted   $ 0.14     $ 0.09     $ 0.05     $ 0.04  

Balance Sheet Data:

       
  As of
December 31,
2013
  As of
March 31, 2014
     Actual   Pro Forma (1)   As Adjusted
Pro Forma (2)
          (unaudited)
Cash and cash equivalents   $ 1,021,023     $ 931     $ 931     $ 8,900,931  
Loans receivable (short- and long-term)   $ 14,694,950     $ 15,575,950     $ 17,175,950     $ 17,175,950  
Total assets   $ 16,124,454     $ 16,035,479     $ 17,635,479     $ 26,535,479  
Total liabilities (all current)   $ 7,231,767     $ 6,973,669     $ 8,573,669     $ 8,573,669  
Working Capital   $ 4,677,229     $ 5,766,902     $ 5,766,902     $ 14,666,902  
Accumulated deficit   $ 487,660     $ 321,952     $ 321,952     $ 321,952  
Shareholders’ equity   $ 8,892,687     $ 9,061,810     $ 9,061,810     $ 17,961,810  

(1) The pro forma balance sheet data gives effect to the following, all of which occurred in July 2014: (i) a $700,000 increase in the Sterling credit line; (ii) a $900,000 increase in outstanding borrowing under short-term notes; and (iii) a $1.6 million increase in short-term notes receivable.
(2) The pro forma, as adjusted balance sheet data reflects the items described in footnote (1) above and gives effect to the receipt of $8.9 million of estimated net proceeds from this offering.

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Operational data:

   
  As of
December 31,
2013
  As of
March 31,
2014
Developer – Residential   $ 12,467,950     $ 13,795,950  
Developer – Commercial     1,750,000       1,225,000  
Developed – Mixed Use     477,000       525,000  
Other           30,000  
Total Outstanding   $ 14,694,950     $ 15,575,950  

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RISK FACTORS

Investing in our common shares involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common shares. If any of the following risks occur, our business, financial condition, liquidity and/or results of operations could be materially and adversely affected. In that case, the trading price of our common shares could decline, and you may lose some or all of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled, “Cautionary Statement Regarding Forward-Looking Statements.”

Risks Related to Our Business

Our loan origination activities, revenues and profits are limited by available funds. If we do not increase our working capital, we will not be able to grow our business.

As a real estate finance company, our revenue and net income is limited to interest paid or accrued on our loan portfolio. Our ability to originate real estate loans is limited by the funds at our disposal. At March 31, 2014, we had virtually no cash or cash equivalents available for loan originations and general operations and only $1.7 million of available credit under a credit line with Sterling National Bank that we can use to originate loans. As of the date of this prospectus, we have no availability under the Sterling credit line and the maximum amount we are permitted to draw upon decreases by $700,000 on August 14, 2014. However, we intend to use the majority of the net proceeds from this offering and the proceeds from the repayment of loans outstanding to originate real estate loans. Nevertheless, if demand for our mortgage loans increases, we cannot assure you that we will be able to capitalize on this demand given the limited funds available to us to originate loans.

We operate in a highly competitive market and competition may limit our ability to originate loans with favorable interest rates.

We operate in a highly competitive market and we believe these conditions will persist for the foreseeable future as the financial services industry continues to consolidate, producing larger, better capitalized and more geographically diverse companies with broad product and service offerings. Thus, our profitability depends, in large part, on our ability to compete effectively. Our competition includes mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage banks, insurance companies, mutual funds, pension funds, private equity funds, hedge funds, institutional investors, investment banking firms, non-bank financial institutions, governmental bodies and other entities as well as family offices and high net worth individuals. We may also compete with companies that partner with and/or receive financing from the U.S. Government. Many of our competitors are substantially larger and have considerably greater financial, technical, marketing and other resources than we do. In addition, larger and more established competitors may enjoy significant competitive advantages, including enhanced operating efficiencies, more extensive referral networks, greater and more favorable access to investment capital and more desirable lending opportunities. Several of these companies, including mortgage REITs, have recently raised or are expected to raise, significant amounts of capital, which enables them to make larger loans or a greater number of loans. Some competitors may have a lower cost of funds and access to funding sources that may not be available to us, such as funding from the U.S. Government for which we are not eligible. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of possible loan transactions or to offer more favorable financing terms than we would. Finally, once we elect to be taxed as a REIT and operate in a manner so as to be exempt from the requirements of the Investment Company Act, we may face further restrictions to which some of our competitors may not be subject. As a result, we may find that our pool of potential borrowers available to us is limited. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations.

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We recently changed our maximum loan size and may further change our investment, leverage, financing and operating strategies, policies or procedures without shareholder consent, which may adversely affect the market value of our common shares and our ability to make distributions to shareholders.

We may amend or revise our policies, including our policies with respect to growth strategy, operations, indebtedness, capitalization, financing alternatives and underwriting criteria and guidelines, or approve transactions that deviate from our existing policies at any time, without a vote of, or notice to, our shareholders. For example, we may decide that in order to compete effectively, we should relax our underwriting guidelines and make riskier loans. This could result in us making lending decisions that are different in type from, and possibly riskier than, the investments that we have made in the past or currently contemplate to make in the future. Or we may decide to expand our business focus to other targeted asset classes, such as participation interests in mortgage loans, mezzanine loans and subordinate interests in mortgage loans. We could also decide to adopt investment strategies that include securitizing our portfolio, hedging transactions and swaps. We may even decide to broaden our business to include acquisitions of real estate assets, which we may or may not operate. Finally, as the market evolves, we may determine that the residential and commercial real estate markets do not offer the potential for attractive risk-adjusted returns for an investment strategy that is consistent with our intention to elect and qualify to be taxed as a REIT and to operate in a manner to remain exempt from registration under the Investment Company Act. If we believe it would be advisable for us to be a more active seller of loans and securities, we may determine that we should conduct such business through a taxable REIT subsidiary or that we should cease to maintain our REIT qualification. These changes may increase our exposure to interest rate risk, default risk, financing risk and real estate market fluctuations, which could adversely affect our business, operations and financial conditions as well as the price of our common shares and our ability to make distributions to our shareholders.

Management has broad authority to make lending decisions. If management fails to generate attractive risk-adjusted loans on a consistent basis, our revenue and income could be materially and adversely affected and the market price of a share of our common shares is likely to decrease.

Our board of directors has given management broad authority to make decisions to originate loans. The only limitation imposed by the board of directors is that no single loan may exceed the lower of (i) 9.9% of our loan portfolio (without taking into account the loan under consideration) and (ii) $1.4 million. Within these broad guidelines, our chief executive officer has the absolute authority to make all lending decisions. Thus, management could authorize transactions that may be costly and/or risky, which could result in returns that are substantially below expectations or that result in losses, which would materially and adversely affect our business operations and results. Further, management’s decisions may not fully reflect the best interests of our shareholders. Our board of directors may periodically review our underwriting guidelines but will not, and will not be required to, review all of our proposed loans. In conducting periodic reviews, our board of directors will rely primarily on information provided to them by management.

Our chief executive officer and chief financial officer are each critical to our business and our future success may depend on our ability to retain them. In addition, as our business grows we will need to hire additional personnel.

Our future success depends to a significant extent on the continued efforts of our founder, president and chief executive officer, Assaf Ran, and our chief financial officer, Vanessa Kao. Mr. Ran generates most if not all of our loan applications, supervises all aspects of the underwriting and due diligence process in connection with each loan, structures each loan and has absolute authority (subject only to the maximum amount of the loan) as to whether or not to approve the loan. Ms. Kao services all loans in our portfolio. If Mr. Ran is unable to continue to serve as our chief executive officer on a full-time basis, we might not be able to generate sufficient loan applications and our business and operations would be adversely affected. In addition, in the future we may need to attract and retain qualified senior management and other key personnel, particularly individuals who are experienced in the real estate finance business and people with experience in managing a mortgage REIT. If we are unable to recruit and retain qualified personnel in the future, our ability to continue to operate and to grow our business will be impaired.

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Terrorist attacks and other acts of violence or war may affect the real estate industry generally and our business, financial condition and results of operations.

Any future terrorist attacks, the anticipation of any such attacks, and the consequences of any military or other response by the United States and its allies may have an adverse impact on the U.S. financial markets and the economy in general. We cannot predict the severity of the effect that any such future events would have on the U.S. financial markets, including the real estate capital markets, the economy or our business. Any future terrorist attacks could adversely affect the credit quality of some of our loan portfolio. We may suffer losses as a result of the adverse impact of any future terrorist attacks and these losses may adversely impact our results of operations.

The enactment of the Terrorism Risk Insurance Act of 2002, or the TRIA, and the subsequent enactment of the Terrorism Risk Insurance Program Reauthorization Act of 2007, which extended TRIA through the end of 2014, requires insurers to make terrorism insurance available under their property and casualty insurance policies in order to receive federal compensation under TRIA for insured losses. However, this legislation does not regulate the pricing of such insurance. The absence of affordable insurance coverage may adversely affect the general real estate lending market, lending volume and the market's overall liquidity and may reduce the number of suitable financing opportunities available to us and the pace at which we are able to make loans. If property owners are unable to obtain affordable insurance coverage, the value of their properties could decline and in the event of an uninsured loss, we could lose all or a portion of our investment. Congress is currently considering a further extension of TRIA through December 31, 2019.

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of our business, we may acquire and store sensitive data on our network, such as our proprietary business information and personally identifiable information of our prospective and current borrowers. The secure processing and maintenance of this information is critical to our business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations and the services we provide to customers or damage our reputation, which could materially and adversely affect us.

Risks Related to Our Portfolio

If we overestimate the yields on our loans or incorrectly value the collateral securing the loan, we may experience losses.

Loan decisions are typically made based on the credit-worthiness of the borrower and the value of the collateral securing the loan. We cannot assure you that our assessments will always be accurate or the circumstances relating to a borrower or the collateral will not change during the loan term, which could lead to losses and write-offs. Losses and write-offs could materially and adversely affect our business, operations and financial condition and the market price of our securities.

Difficult conditions in the markets for mortgages and mortgage-related assets as well as the broader financial markets have resulted in a significant contraction in liquidity for mortgages and mortgage-related assets, which may adversely affect the value of the assets that we intend to originate.

Our results of operations will be materially affected by conditions in the markets for mortgages and mortgage-related assets as well as the broader financial markets and the economy generally. In recent years, significant adverse changes in financial market conditions have resulted in a decline in real estate values, jeopardizing the performance and viability of many real estate loans. As a result, many traditional mortgage lenders have suffered severe losses and several have even failed. This situation has negatively affected both the terms and availability of financing for small non-bank real estate finance companies. This could have an adverse impact on our financial condition, business and operations.

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Short-term loans may involve a greater risk of loss than traditional mortgage loans.

Borrowers usually use the proceeds of a long-term mortgage loan or sale to repay a short-term loan. We may therefore depend on a borrower’s ability to obtain permanent financing or sell the property to repay our loan, which could depend on market conditions and other factors. Short-term loans are also subject to risks of borrower defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance. In the event of a default, we bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount and unpaid interest of the interim loan. To the extent we suffer such losses with respect to our interim loans, the value of our company and the price of our shares of common shares may be adversely affected.

As a lending institution, we may be subject to “lender liability” claims. Our financial condition could be materially and adversely impacted if we were to be found liable and required to pay damages.

In recent years, a number of judicial decisions have upheld the right of borrowers to sue lenders on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders. We cannot assure prospective investors that such claims will not arise or that we will not be subject to significant liability if a claim of this type did arise.

An increase in the rate of prepayment of outstanding loans may have an adverse impact on the value of our portfolio as well as our revenue and income.

The value of our loan portfolio may be affected by prepayment rates and a significant increase in the rate of prepayments could have an adverse impact on our operating results, accordingly, prepayment rates cannot be predicted with certainty and no strategy can completely insulate us from prepayment or other such risks. In periods of declining interest rates, prepayment rates on mortgage and other real estate-related loans generally increase. Proceeds of prepayments received during such periods are likely to be reinvested by us in new loans yielding less than the yields on the loans that were prepaid, resulting in lower revenues and possibly, lower profits. A portion of our loan portfolio requires prepayment fees if a loan is prepaid. However, there can be no assurance that these fees will make us whole for the detriment incurred by virtue of the prepayment.

The lack of liquidity in our portfolio may adversely affect our business.

The illiquidity of our loan portfolio may make it difficult for us to sell such assets if the need or desire arises. As a result, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the outstanding loan balance.

The geographic concentration of our loan portfolio may make our revenues and the values of the mortgages and real estate securing our portfolio vulnerable to adverse changes in economic conditions in the New York metropolitan area.

Under our current business model, we have one asset class — mortgage loans that we originate, service and manage — and we have no current plans to diversify. Moreover, most of our collateral is located in a limited geographic area. At March 31, 2014, except for one loan in the original principal amount of $30,000, all of our outstanding loans are secured by properties located in the New York metropolitan area. A lack of geographical diversification makes our mortgage portfolio more sensitive to local and regional economic conditions. A significant decline in the New York metropolitan area economy could result in a greater risk of default compared with the default rate for loans secured by properties in other geographic locations. This could result in a reduction of our revenues and provision for loan loss allowances which might not be as acute if our loan portfolio were more geographically diverse. Therefore, our loan portfolio is subject to greater risk than other real estate finance companies that have a more diversified asset base and broader geographic footprint. To the extent that our portfolio is concentrated in one region and/or one type of asset, downturns relating generally to such region or type of asset may result in defaults on a number of our assets within a short time period, which may reduce our net income and the value of our common shares and accordingly reduce our ability to make distributions to our shareholders.

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A prolonged economic slowdown, a lengthy or severe recession or declining real estate values could impair our investments and harm our operations.

A prolonged economic slowdown, a recession or declining real estate values could impair the performance of our assets and harm our financial condition and results of operations, increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. Thus, we believe the risks associated with our business will be more severe during periods of economic slowdown or recession because these periods are likely to be accompanied by declining real estate values. Declining real estate values is likely to have one or more of the following adverse consequences:

reduce the level of new mortgage and other real estate-related loan originations since borrowers often use appreciation in the value of their existing properties to support the purchase or investment in additional properties;
make it more difficult for existing borrowers to remain current on their payment obligations; and
significantly increase the likelihood that we will incur losses on our loans in the event of default because the value of our collateral may be insufficient to cover our cost on the loan.

Any sustained period of increased payment delinquencies, foreclosures or losses could adversely affect both our net interest income from loans in our portfolio as well as our ability to originate new loans, which would materially and adversely affect our results of operations, financial condition, liquidity and business and our ability to make distributions to our shareholders.

We do not carry any loan loss reserves. If we are required to write-off all or a portion of any loan in our portfolio, our net income will be adversely impacted. Loan loss reserves are particularly difficult to estimate in a turbulent economic environment.

Based on our experience and our periodic evaluation of our loan portfolio, we have not deemed it necessary to create any loan loss reserves. Thus, a loss with respect to all or a portion of a loan in our portfolio will have an immediate and adverse impact on our net income. The valuation process of our loan portfolio requires us to make certain estimates and judgments, which are particularly difficult to determine during a period in which the availability of commercial real estate credit is limited and commercial real estate transactions have decreased. These estimates and judgments are based on a number of factors, including projected cash flows from the collateral securing our mortgage loans, if any, loan structure, including the availability of reserves and recourse guarantees, likelihood of repayment in full at the maturity of a loan, potential for a refinancing market coming back to commercial real estate in the future and expected market discount rates for varying property types. If our estimates and judgments are not correct, our results of operations and financial condition could be severely impacted.

Our due diligence may not reveal all of a borrower's liabilities and may not reveal other weaknesses in its business.

Before making a loan to a borrower, we assess the strength and skills of such entity's management and other factors that we believe are material to the performance of the loan. In making the assessment and otherwise conducting customary due diligence, we rely on the resources available to us and, in some cases, services provided by third parties. This process is particularly important and subjective with respect to newly organized entities because there may be little or no information publicly available about the entities. There can be no assurance that our due diligence processes will uncover all relevant facts or that the borrower’s circumstances will not change after the loan is funded. In either case, this could adversely impact the performance of the loan and our operating results.

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Our loans are typically made to entities to enable them to acquire, develop or renovate residential or commercial property, which may involve a greater risk of loss than loans to individual owners of residential real estate.

We make loans to corporations, partnerships and limited liability companies who are looking to purchase, renovate or improve residential, commercial or mixed use real estate that they can then sell or operate. More often than not, the property is under-utilized, poorly managed, or located in a recovering neighborhood. These loans have a higher degree of risk than loans to individual property owners with respect to their primary residence because of a variety of factors, including little or no cash flow. If the neighborhood in which the asset is located fails to recover according to the borrower’s projections, or if the borrower fails to improve the quality of the property’s management and/or the value of the property, the borrower may not receive a sufficient return on the property to satisfy the loan, and we bear the risk that we may not recover some or all of our principal. In addition, the borrower has less of an emotional attachment to the property, which makes it easier for it to default if the property fails to perform as expected. Finally, there are difficulties associated with collecting debts from entities that may be judgment proof. While we try to mitigate these risks in various ways, including by getting personal guarantees from the principals of the borrower, we cannot assure you that these lending and credit enhancement strategies will be successful.

Volatility of values of multi-family and commercial properties may adversely affect our loans and investments.

Multi-family and commercial property values and net operating income derived from such properties are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, events such as natural disasters, including hurricanes and earthquakes, acts of war and/or terrorism and others that may cause unanticipated and uninsured performance declines and/or losses to us or the owners and operators of the real estate securing our investment; national, regional and local economic conditions, such as what we have experienced in recent years (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as an oversupply of housing, retail, industrial, office or other commercial space); changes or continued weakness in specific industry segments; construction quality, construction cost, age and design; demographic factors; retroactive changes to building or similar codes; and increases in operating expenses (such as energy costs). In the event a property's net operating income decreases, a borrower may have difficulty repaying our loan, which could result in losses to us. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our loans, which could also cause us to suffer losses.

Our inability to promptly foreclose on defaulted loans could increase our costs and/or losses.

The performance of first mortgage loans may depend on the performance of the underlying real estate collateral. In particular, commercial mortgage loans are subject to risks of delinquency and foreclosure, and risks of loss that are greater than similar risks associated with loans made on the security of single-family residential property. The ability of a borrower under a first mortgage loan to repay a loan secured by an income-producing property typically depends primarily on the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan is impaired and the borrower defaults, we may lose all or substantially all of our investment. If the property is not income producing, as is the case with most of our loans, the risks are even greater. While we have certain rights with respect to the real estate collateral underlying a first mortgage loan, and rights against the borrower and guarantor(s), in the event of a default there are a variety of factors that may inhibit our ability to enforce our rights to collect the loan, whether through a non-payment action against the borrower, a foreclosure proceeding against the underlying property or a collection or enforcement proceeding against the guarantor. These factors include, without limitation, state foreclosure timelines and deferrals associated therewith (including with respect to litigation); unauthorized occupants living in the property; federal, state or local legislative action or initiatives designed to provide residential property owners with assistance in avoiding foreclosures and that serve to delay the foreclosure process; government programs that require specific procedures to be followed to explore the refinancing of a residential mortgage loan prior to the commencement of a foreclosure proceeding; and continued declines in real estate values and sustained high levels of unemployment that increase the number of foreclosures and place additional pressure on the already overburdened judicial and administrative systems.

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None of our loans are funded with interest reserves and our borrowers may be unable to pay the interest accruing on the loans when due, which could have a material adverse impact on our financial condition.

Our loans are not funded with an interest reserve. Thus, we rely on the borrowers to make interest payments as and when due from other sources of cash. Given the fact that most of the properties securing our loans are not income producing or even cash producing and most of the borrowers are entities with no assets other than the single property that is the subject of the loan, some of our borrowers have considerable difficulty servicing our loans and the risk of a non-payment of default is considerable. We depend on the borrower’s ability to refinance the loan at maturity or sell the property for repayment. If the borrower is unable to repay the loan, together with all the accrued interest, at maturity, our operating results and cash flows would be materially and adversely affected.

Foreclosure of a mortgage loan can be an expensive and lengthy process that could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan. In addition, in the event of the bankruptcy of the borrower, we may not have full recourse to the assets of the borrower, or the assets of the borrower or the guarantor may not be sufficient to satisfy the debt.

Interest rate fluctuations could reduce our ability to generate income and may cause losses.

Our primary interest rate exposures relates to the yield on our loan portfolio and the financing cost of our debt. Our operating results depend, in part, on differences between the interest income generated by our loan portfolio net of credit losses and our financing costs. Thus, changes in interest rates will affect our revenue and net income in one or more of the following ways:

our operating expenses may increase;
our ability to originate loans may be adversely impacted;
to the extent we use our credit line or other forms of debt financing to originate loans, our borrowing costs would rise, reducing the “spread” between our cost of funds and the yield on our outstanding mortgage loans, which tend to be fixed rate obligations;
a rise in interest rates may discourage potential borrowers from refinancing existing loans or defer plans to renovate or improve their properties;
increase borrower default rates;
negatively impact property values making our existing loans riskier and new loans that we originate smaller;
rising interest rates could also result in reduced turnover of properties which may reduce the demand for new mortgage loans.

Liability relating to environmental matters may impact the value of properties that we may acquire or the properties underlying our investments.

Under various U.S. federal, state and local laws, an owner or operator of real property may become liable for the costs of removal of certain hazardous substances released on its property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances. The presence of hazardous substances may adversely affect an owner’s ability to sell real estate or borrow using real estate as collateral. 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. If we acquire any properties by foreclosure or otherwise, the presence of hazardous substances on a property may adversely affect our ability to sell the property and we may incur substantial remediation costs, thus harming our financial condition. The discovery of material environmental liabilities attached to such properties could have a material adverse effect on our results of operations and financial condition and our ability to make distributions to shareholders.

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Defaults on our loans may cause declines in revenues and net income.

Defaults by borrowers could result in one or more of the following adverse consequences:

a decrease in interest income, profitability and cash flow;
the establishment of or an increase in loan loss reserves;
write-offs and losses;
default under our credit facilities; and
an increase in legal and enforcement costs, as we seek to protect our rights and recover the amounts owed.

As a result, we will have less cash available for paying our other operating expenses and for making distributions to our shareholders. This would have a material adverse effect on the market price of our common shares.

Our revenues and the value of our portfolio may be negatively affected by casualty events occurring on properties securing our loans.

We require our borrowers to obtain, for our benefit, all risk property insurance covering the property and any improvements to the property collateralizing our loan in an amount intended to be sufficient to provide for the cost of replacement in the event of casualty. However, the amount of insurance coverage maintained for any property may not be sufficient to pay the full replacement cost following a casualty event. Furthermore, there are certain types of losses, such as those arising from earthquakes, floods, hurricanes and terrorist attacks, that may be uninsurable or that may not be economically feasible to insure. Changes in zoning, building codes and ordinances, environmental considerations and other factors may make it impossible for our borrowers to use insurance proceeds to replace damaged or destroyed improvements at a property. If any of these or similar events occur, the amount of coverage may not be sufficient to replace a damaged or destroyed property and/or to repay in full the amount due on loans collateralized by such property. As a result, our returns and the value of our investment may be reduced.

Borrower concentration could lead to significant losses, which could have a material adverse impact on our operating results and financial condition.

As of March 31, 2014, two affiliated borrower groups accounted for an aggregate of 21.5% of our loan portfolio. Similarly, as of December 31, 2013, two affiliated borrower groups accounted for an aggregate of 25.5% of our loan portfolio. A default by one borrower in a group is likely to result in a default by the other borrowers in the group. A group-wide default would have a material adverse impact on our operating results, cash flow and financial condition.

Risks Related to Financing Transactions

Our existing credit line is about to expire and either it will have to be extended or we will have to refinance. If we cannot extend the credit line or refinance we may have to sell off a portion of our loan portfolio to pay off the debt.

We have a $7.7 million credit line with Sterling National Bank that expires on November 1, 2014. The maximum amount we can draw upon under the line of credit decreases to $7.0 million on August 14, 2014 and we must repay any excess amount outstanding on that date. The outstanding balance on the line at March 31, 2014 was $5.3 million. As of the date of this prospectus, the amount outstanding under the Sterling credit line is $7.7 million. The facility contains various covenants and restrictions that are typical for these kinds of credit facilities including limitations on loan to value ratios, on the amount of loans to affiliated borrowers, on the terms of loans as well as on the amount that can be used to fund construction. We are also required to comply with various non-financial covenants. If we cannot extend the expiration date of the Sterling credit line, we will have to repay the debt with our working capital ( i.e., proceeds from loan repayments), sell a portion of our loan portfolio and use the proceeds to repay the debt or refinance with another lender. If we have to sell a portion of our loan portfolio, the amount we realize may be less than the

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face amount of the loans sold, resulting in a loss. If we sell a portion of our portfolio or use proceeds from loan repayments to pay the Sterling debt, our opportunities to grow our business will be negatively impacted.

We have no commitment from Sterling to extend the credit line and no commitment from any other potential lender to refinance the Sterling credit line. If we are required to refinance the Sterling credit line, the new lender may impose covenants that are significantly more onerous than those imposed by Sterling. In addition, any financing transaction entails significant risks, including one or more of the following:

the market value of our assets pledged or sold by us to the provider of the credit line may decline in value, in which case the lender may require us to provide additional collateral or to repay all or a portion of the funds advanced;
we may not have the funds available to repay our debt at that time, which would likely result in defaults unless we are able to raise the funds from alternative sources, which we may not be able to achieve on favorable terms or at all;
pledging additional collateral would reduce our liquidity and limit our ability to leverage our assets. If we cannot meet these requirements, the lender could accelerate our indebtedness, increase the interest rate on advanced funds and terminate our ability to borrow funds from them, which could materially and adversely affect our financial condition and ability to implement our business plan;
in the event that the lender files for bankruptcy or becomes insolvent, our loans may become subject to bankruptcy or insolvency proceedings, thus depriving us, at least temporarily, of the benefit of these assets, restrict our access to bank credit facilities and increase our cost of capital;
providers of credit facilities may also require us to maintain a certain amount of cash or set aside assets sufficient to maintain a specified liquidity position that would allow us to satisfy our collateral obligations precluding us from leveraging our assets as fully as we would like, which could reduce our return on assets.

Any of the foregoing could materially and adversely affect our financial condition and business operations.

If Sterling is unwilling to extend the credit line and we are unable to refinance the credit line our only other option would be to sell off a portion of our existing loan portfolio. We cannot assure you that the amount realized will be equal to or greater than the face amount of the loans sold, in which case we would realize a loss on the sale. In addition, we cannot assure you that we will be able obtain additional credit or new credit on favorable terms or at all.

Short-term notes in the aggregate principal amount of $2.2 million will become due at various times over the next 12 months. We cannot assure you that we will be able to extend the maturities of those notes or refinance them.

As of the date of this prospectus, we have eight short-term notes outstanding having an aggregate principal amount of $2.2 million and bearing interest at rates ranging from 6% to 14%. Unless extended by the holders, these notes will become due at various times between August 14, 2014 and July 29, 2015, including $860,000 that will become due on or before September 1, 2014. We cannot assure you that they will continue to do so. If a holder does not agree to any further extensions, we will have to pay-off the note, either with working capital or with proceeds from another financing. This could have an adverse impact on our operating results as it would reduce the amount available to us to make additional loans.

Our access to financing may be limited and, thus, our ability to maximize our returns may be adversely affected.

Our ability to grow and compete may also depend on our ability to borrow money to leverage our loan portfolio and to build and manage the cost of expanding our infrastructure to manage and service a larger loan portfolio. In general, the amount, type and cost of any financing that we obtain from another financial institution will have a direct impact on our revenue and expenses and, therefore, can positively or negatively affect our financial results. The percentage of leverage we employ will vary depending on our assessment of a variety of factors, which may include the anticipated liquidity and price volatility of our existing portfolio, the potential for losses and extension risk in our portfolio, the gap between the duration of our assets and

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liabilities, the availability and cost of financing, our opinion as to the creditworthiness of our financing counterparties, the health of the U.S. economy and commercial mortgage markets, our outlook for the level, slope, and volatility of interest rates, the credit quality of our borrowers and the collateral underlying our assets.

Our access to financing will depend upon a number of factors, over which we have little or no control, including:

general market conditions;
the market’s view of the quality of our assets;
the market’s perception of our growth potential;
our eligibility to participate in and access capital from programs established by the U.S. Government;
our current and potential future earnings and cash distributions; and
the market price of the shares of our common shares.

Continuing weakness in the capital and credit markets could adversely affect our ability to secure financing on favorable terms or at all. In addition, if regulatory capital requirements imposed on our private lenders change, they may be required to limit, or increase the cost of, financing they provide to us. In general, this could potentially increase our financing costs and reduce our liquidity or require us to sell loans at an inopportune time or price.

We cannot assure you that we will always have access to structured financing arrangements when needed. If structured financing arrangements are not available to us we may have to rely on equity issuances, which may be dilutive to our shareholders, or on less efficient forms of debt financing that require a larger portion of our cash flow from operations, thereby reducing funds available for our operations, future business opportunities, cash distributions to our shareholders and other purposes. We cannot assure you that we will have access to such equity or debt capital on favorable terms (including, without limitation, cost and term) at the desired times, or at all, which may cause us to curtail our lending activities and/or dispose of loans in our portfolio, which could negatively affect our results of operations.

Restrictive covenants in our credit line may inhibit our ability to grow our business and increase revenues.

Future lenders may impose additional restrictions on us that may adversely impact our growth strategy. These additional restrictions may cause one or more of the following consequences:

limit our ability to make certain investments or acquisitions;
reduce liquidity below certain levels;
limit our ability to make distributions to shareholders;
limit our ability to redeem debt or equity securities;
limit our ability to impact our flexibility to determine our operating policies and investment strategies; and
limit our ability to repurchase our common shares, distribute more than a certain amount of our net income or funds from operations to our shareholders, employ leverage beyond certain amounts, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates.

If we fail to meet or satisfy any of these covenants, we would be in default under these agreements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral and enforce their interests against existing collateral. We may also be subject to cross-default and acceleration rights and, with respect to collateralized debt, the posting of additional collateral and foreclosure rights upon default. Further, this could also make it difficult for us to satisfy the qualification requirements necessary to qualify or maintain REIT status. A default and resulting repayment acceleration could significantly reduce our liquidity, which could require us to sell our assets to

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repay amounts due and outstanding. This could also significantly harm our business, financial condition, results of operations and ability to make distributions, which could cause the value of our capital stock to decline. A default could also significantly limit our financing alternatives such that we would be unable to pursue our leverage strategy, which could adversely affect our returns.

Our use of leverage may adversely affect the return on our assets and may reduce cash available for distribution to our shareholders, as well as increase losses when economic conditions are unfavorable.

We do not have a formal policy limiting the amount of debt we incur and our governing documents contain no limitation on the amount of leverage we may use. We may significantly increase the amount of leverage we utilize at any time without approval of our board of directors. In addition, we may leverage individual assets at substantially higher levels. Incurring substantial debt could subject us to many risks that, if realized, would materially and adversely affect us, including the risk that:

our cash flow from operations may be insufficient to make required payments of principal of and interest on our outstanding indebtedness or we may fail to comply with all of the other covenants contained in the debt, which is likely to result in (i) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision) that we may be unable to repay from internal funds or to refinance on favorable terms, or at all, (ii) our inability to borrow unused amounts under our financing arrangements, even if we are current in payments on borrowings under those arrangements and/or (iii) the loss of some or all of our assets pledged or liened to secure our indebtedness to foreclosure or sale;
our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that yields will increase with higher financing costs;
we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, future business opportunities, shareholder distributions or other purposes; and
we are not able to refinance debt that matures prior to the asset it was used to finance on favorable terms, or at all.

Our board of directors may adopt leverage policies at any time without the consent of our shareholders, which could result in a portfolio with a different risk profile.

Risks Related to REIT Status and Investment Company Act Exemption

We have no experience managing a REIT or managing a portfolio of assets in the manner necessary to maintain an exemption under the Investment Company Act, which may hinder our ability to achieve our business objectives or result in the loss of our qualification as a REIT.

We have never operated as a REIT and have no experience in converting to REIT status. While we have been profitable in every year since we started our lending business, we cannot assure you that we will be able to continue to operate our business successfully once we must operate in conformity with REIT requirements. As a result, we are subject to all of the customary business risks and uncertainties associated with any new business, including the risk that we will not achieve our objectives and, as a result, the value of our common shares could decline substantially.

The rules and regulations applicable to REITs under the Code are highly technical and complex and the failure to comply with these rules and regulations in a timely manner could prevent us from qualifying as a REIT or could force us to pay unexpected taxes and penalties. None of our executive officers have any experience managing a portfolio of assets under these complex rules and regulations or operating a business in compliance with the numerous technical restrictions and limitations set forth in the Code applicable to REITs. In addition, we will be required to develop and implement or invest in substantial control systems and procedures in order for us to qualify and maintain our qualification as a public REIT. As a result, we cannot assure you that we will be able to successfully operate as a REIT or comply with rules and regulations applicable to REITs, which would substantially reduce our earnings and may reduce the market value of our common shares. In addition, in order to maintain our exemption from registration under the Investment

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Company Act, the assets in our portfolio will be subject to certain restrictions, which will limit our operations meaningfully. Neither of our executive officers has any experience managing a portfolio in the manner necessary to maintain our exemption from registration under the Investment Company Act, and no experience managing a public company under the constraints imposed by the Investment Company Act.

We have no experience operating a REIT and our financial statements may be materially affected if our estimates prove to be inaccurate.

Financial statements prepared in accordance with U.S. GAAP require the use of estimates, judgments and assumptions that affect the reported amounts. Different estimates, judgments and assumptions reasonably could be used that would have a material effect on the financial statements, and changes in these estimates, judgments and assumptions are likely to occur from period to period in the future. Significant areas of accounting requiring the application of management’s judgment include, but are not limited to (1) assessing the adequacy of the allowance for loan losses and (2) determining the fair value of investment securities. These estimates, judgments and assumptions are inherently uncertain, and, if they prove to be wrong, then we face the risk that charges to income will be required. For example, currently, we do not carry any loan loss reserves. However, a decline in economic condition could negatively impact the credit quality of our loan portfolio and require us to establish loan loss reserves, which could have an adverse impact on our net income. In addition, because we have limited operating history as a REIT and limited experience in making these estimates, judgments and assumptions, the risk of future charges to income may be greater than if we had more experience in these areas. Any such charges could significantly harm our business, financial condition, results of operations and the price of our securities.

Complying with REIT requirements may hinder our ability to maximize profits, which would reduce the amount of cash available to be distributed to our shareholders. This could have a negative impact on the price of our shares.

In order to qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning among other things, the composition of our assets, our sources of income, the amounts we distribute to our shareholders and the ownership of our capital stock. Specifically, in order to qualify as a REIT, we must ensure that at the end of each calendar quarter at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investment in securities cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of such issuer. In addition, no more than 5% of the value of our assets can consist of the securities of any one issuer, other than a qualified REIT security. If we fail to comply with these requirements, we must dispose of the portion of our assets in excess of such amounts within 30 days after the end of the calendar quarter in order to avoid losing our REIT status and suffering adverse tax consequences. In such event, we may be forced to sell non-qualifying assets at less than their fair market value. As a result of these requirements, our operating costs may increase to ensure compliance. For example, as a REIT, we may depend to a much greater extent than we currently do on communications and information systems. We may have to upgrade our existing systems in order to monitor a larger portfolio of loans, to track our revenue to make sure we do not inadvertently fail the revenue requirements for a REIT and to make sure that we distribute the requisite amount of our income to shareholders. In addition, we have to hire additional personnel to sustain a higher level of business and a larger portfolio. Thus, it is very likely that our operating expenses will increase and we cannot assure you that we will be able to sustain our profitability at our historical levels. In addition, we may also be required to make distributions to shareholders at times when we do not have funds readily available for distribution or are otherwise not optional for us. Accordingly, compliance with REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

Our failure to qualify or remain qualified as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which would reduce the amount of cash available for distribution to our shareholders.

We intend to operate in a manner that will enable us to qualify as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2014 or as soon as possible thereafter. We have not requested and do not intend to request a ruling from the Internal Revenue Service, or the IRS, that

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we qualify as a REIT. The U.S. federal income tax laws and the Treasury Regulations promulgated thereunder governing REITs are complex. In addition, judicial and administrative interpretations of the U.S. federal income tax laws governing REIT qualification are limited. To qualify as a REIT, we must meet, on an ongoing basis, various tests regarding the nature of our assets and our income, the ownership of our outstanding shares, and the amount of our distributions. Our ability to satisfy the asset tests depends on our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income and quarterly asset requirements also depends on our ability to successfully manage the composition of our income and assets on an ongoing basis. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT. Thus, while we intend to operate so that we will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given that we will so qualify for any particular year. These considerations also might restrict the types of assets that we can acquire in the future.

If we fail to qualify as a REIT in any taxable year, and we do not qualify for certain statutory relief provisions, we would be required to pay U.S. federal income tax on our taxable income, and distributions to our shareholders would not be deductible by us in determining our taxable income. In such a case, we might need to borrow money or sell assets in order to pay our taxes. Our payment of income tax would decrease the amount of our income available for distribution to our shareholders. Furthermore, if we fail to maintain our qualification as a REIT, we no longer would be required to distribute substantially all of our net taxable income to our shareholders. In addition, unless we were eligible for certain statutory relief provisions, we could not re-elect to qualify as a REIT until the fifth calendar year following the year in which we failed to qualify.

REIT distribution requirements could adversely affect our ability to execute our business plan and may require us to incur debt or sell assets to make such distributions.

In order to qualify as a REIT, we must distribute to our shareholders, each calendar year, at least 90% of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain. To the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our taxable income, we are subject to U.S. federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any calendar year are less than a minimum amount specified under U.S. federal income tax laws. We intend to distribute our net income to our shareholders in a manner that will satisfy the REIT 90% distribution requirement and to avoid the 4% nondeductible excise tax.

Our taxable income may substantially exceed our net income as determined by U.S. GAAP and differences in timing between the recognition of taxable income and the actual receipt of cash may occur. For example, we may be required to accrue interest and discount income on mortgage loans before we receive any payments of interest or principal on such assets. We may be required under the terms of the indebtedness that we incur, to use cash received from interest payments to make principal payment on that indebtedness, with the effect that we will recognize income but will not have a corresponding amount of cash available for distribution to our shareholders.

As a result of the foregoing, we may generate less cash flow than taxable income in a particular year and find it difficult or impossible to meet the REIT distribution requirements in certain circumstances. In such circumstances, we may be required to: (i) sell assets in adverse market conditions, (ii) borrow on unfavorable terms, (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt, (iv) make a taxable distribution of our shares as part of a distribution in which shareholders may elect to receive shares or (subject to a limit measured as a percentage of the total distribution) cash or (v) use cash reserves, in order to comply with the REIT distribution requirements and to avoid corporate income tax and the 4% nondeductible excise tax. Thus, compliance with the REIT distribution requirements may hinder our ability to grow, which could adversely affect the value of our common shares.

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Even if we qualify as a REIT, we may face tax liabilities that reduce our cash flow.

Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, franchise, property and transfer taxes, including mortgage recording taxes. In addition, in order to meet the REIT qualification requirements, or to avoid the imposition of a 100% tax that applies to certain gains derived by a REIT from sales of inventory or property held primarily for sale to customers in the ordinary course of business, we may create “taxable REIT subsidiaries” to hold some of our assets. Any taxes paid by such subsidiary corporations would decrease the cash available for distribution to our shareholders.

Our qualification as a REIT may depend on the accuracy of legal opinions or advice rendered or given and the inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax.

In determining whether we will qualify as a REIT, we may rely on opinions or advice of counsel as to whether certain types of assets that we hold or acquire are deemed REIT real estate assets for purposes of the REIT asset tests and produce income which qualifies under the 75% REIT gross income test. The inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax.

We may choose to make distributions in shares of our capital stock, in which case you may be required to pay income taxes in excess of the cash dividends you receive.

We may distribute taxable dividends that are payable in cash and/or common shares at the election of each shareholder. Shareholders receiving such dividends will be required to include the full amount of the dividend as ordinary income. As a result, shareholders may be required to pay income taxes with respect to such dividends in excess of the cash portion of the dividend. Accordingly, shareholders receiving a distribution of shares may be required to sell those shares or may be required to sell other assets they own at a time that may be disadvantageous in order to satisfy any tax imposed on the distribution they receive from us. If a shareholder sells the common shares that he or she receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our share at the time of the sale. Furthermore, with respect to certain non-U.S. shareholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in shares, by withholding or disposing of some of the common shares in the distribution and using the proceeds of such disposition to satisfy the withholding tax imposed. In addition, if a significant number of our shareholders determine to sell our common shares in order to pay taxes owed on dividends, such sale may put downward pressure on the trading price of our common shares.

Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations, which could adversely affect the value of our common shares.

Dividends payable by REITs are not eligible for the reduced rates generally applicable to dividends but are taxed at the same rate as ordinary income. Although the reduced U.S. federal income tax rate applicable to dividend income from regular corporate dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends. This could have an adverse impact on the market price of our common shares.

Liquidation of our assets may jeopardize our REIT qualification.

To qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our assets to repay obligations to our lenders, we may be unable to comply with these requirements, thereby jeopardizing our qualification as a REIT. In addition, we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as inventory or property held primarily for sale to customers in the ordinary course of business.

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The ownership restrictions set forth in our restated certificate of incorporation may not prevent five or fewer shareholders from owning 50% or more of our outstanding shares of capital stock causing us to lose our status as a REIT.

Assuming we sell 2,830,000 shares in this offering, Assaf Ran, our chief executive officer, will own 35.1% of our outstanding common shares immediately after the offering. There is no restriction on Mr. Ran’s ability to acquire additional shares of our common stock. In addition, our restated certificate of incorporation will prohibit any other shareholder from acquiring more than a fixed percentage of our outstanding capital stock, by value or number of shares, whichever is more restrictive. The limitation will be between 3% and 7% and will be determined by our board of directors at the time we file our restated certificate of incorporation. Mr. Ran will not be subject to the ownership restrictions set forth in our restated certificate of incorporation. Even if he does not acquire any additional shares we could have a situation where fewer than five shareholders own more than 50% of our outstanding shares. As a result, we would no longer qualify as a REIT and all our income would be taxable at the corporate level at the prevailing corporate tax rates and our shareholders would be further taxed on any distributions of our net after tax income.

The share ownership limits that apply to REITs, as prescribed by the Code and by our restated certificate of incorporation may inhibit market activity in our common shares and restrict our business combination opportunities.

In order for us to qualify as a REIT, not more than 50% in value of our outstanding shares of stock 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 insure that we meet the tests, we will amend our certificate of incorporation immediately before this offering to restrict the acquisition and ownership of our capital stock. The limitation will be between 3% and 7% of our outstanding shares of capital stock, by value or number of shares, whichever is more restrictive. The actual limitation will be determined by our board of directors at the time we file our restated certificate of incorporation. Assaf Ran, our current chief executive officer, will be exempt from this restriction. Mr. Ran currently owns 58.1% of our outstanding common shares and, assuming we sell 2,830,000 shares in this offering, will own 35.1% of our outstanding common shares immediately after this offering. In addition our board of directors may grant such an exemption to such limitations in its sole discretion, subject to such conditions, representations and undertakings as it may determine. These ownership limits could delay or prevent a transaction or a change in control of our company that might involve a premium price for shares of our common shares or otherwise be in the best interest of our shareholders.

The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans that would be treated as sales for U.S. federal income tax purposes.

A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, but including mortgage loans, held as inventory or primarily for sale to customers in the ordinary course of business. We might be subject to this tax if we were to sell or securitize loans in a manner that was treated as a sale of the loans as inventory for U.S. federal income tax purposes. Although at the present time we have no plans to sell any of our loans, in the future we may need to sell all or a portion of our portfolio in order to raise funds, reduce our exposure to certain risks or for other reasons. In such event, in order to avoid the prohibited transactions tax, we may be required to structure the sales in ways that may be less beneficial than we would if we were not a REIT.

We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common shares.

At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be changed, possibly with retroactive effect. We cannot predict if or when any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective or whether any such law, regulation or interpretation may take

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effect retroactively. We and our shareholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.

We have not established a minimum distribution payment level and we may be unable to generate sufficient cash flows from our operations to make distributions to our shareholders at any time in the future.

As a REIT, we would be required to distribute to our shareholders at least 90% of our taxable income each year. We intend to satisfy this requirement through quarterly distributions of all or substantially all of our REIT taxable income in such year, subject to certain adjustments. We have not established a minimum distribution payment level and our ability to pay distributions may be adversely affected by a number of factors, including the risk factors described in this prospectus. If we make distributions from uninvested offering proceeds, which would generally be considered to be a return of capital for tax purposes, our future earnings and cash available for distribution may be reduced from what they otherwise would have been. All distributions will be made at the discretion of our board of directors and will depend on various factors, including our earnings, our financial condition, our liquidity, our debt and preferred stock covenants, maintenance of our REIT qualification, applicable provisions of the New York Business Corporation Law (NYBCL), and other factors as our board of directors may deem relevant from time to time. We believe that a change in any one of the following factors could adversely affect our results of operations and impair our ability to pay distributions to our shareholders:

how we deploy the net proceeds of this offering;
our ability to make loans at favorable interest rates;
expenses that reduce our cash flow;
defaults in our asset portfolio or decreases in the value of our portfolio; and
the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates.

A change in any of these factors could affect our ability to make distributions. As a result, we cannot assure you that we will be able to make distributions to our shareholders at any time in the future or that the level of any distributions we do make to our shareholders will achieve a market yield or increase or even be maintained over time, any of which could materially and adversely affect us.

In addition, distributions that we make to our shareholders will generally be taxable to our shareholders as ordinary income. However, a portion of our distributions may be designated by us as long-term capital gains to the extent that they are attributable to capital gain income recognized by us or may constitute a return of capital to the extent that they exceed our earnings and profits as determined for tax purposes. A return of capital is not taxable, but has the effect of reducing the basis of a shareholder’s investment in our shares of common shares.

We could be materially and adversely affected if we are deemed to be an investment company under the Investment Company Act.

We rely on the exception from the Investment Company Act set forth in Section 3(c)(5)(C) of the Investment Company Act. The SEC generally requires that, for the exception provided by Section 3(c)(5)(C) to be available, 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 additional qualifying interests or real estate-type interests (with no more than 20% of the entity’s assets comprised of miscellaneous assets). Any significant acquisition by us of non-real estate assets without the acquisition of substantial real estate assets could cause us to meet the definitions of an “investment company.” If we are deemed to be an investment company, we could be required to dispose of non-real estate assets or a portion thereof, potentially at a loss, in order to qualify for the 3(c)(5)(C) exception. We may also be required to register as an investment company if we are unable to dispose of the disqualifying assets, which could have a material adverse effect on us.

Registration under the Investment Company Act would require us to comply with a variety of substantive requirements that impose, among other things:

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limitations on capital structure;
restrictions on specified investments;
restrictions on leverage or senior securities;
restrictions on unsecured borrowings;
prohibitions on transactions with affiliates;
compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating expenses.

If we were required to register as an investment company but failed to do so, we could be prohibited from engaging in our business, and criminal and civil actions could be brought against us.

Registration with the SEC as an investment company would be costly, would subject us to a host of complex regulations and would divert attention from the conduct of our business, which could materially and adversely affect us. In addition, if we purchase or sell any real estate assets to avoid becoming an investment company under the Investment Company Act, our net asset value, the amount of funds available for investment and our ability to pay distributions to our stockholders could be materially adversely affected.

Risks Related to Our Common Shares and This Offering

After this offering management will continue to significantly influence and have effective control over all matters submitted to shareholders for approval and may act in a manner that conflicts with the interests of other shareholders.

As of July 8, 2014, Assaf Ran, our chief executive officer, beneficially owned 58.1% of our outstanding common shares. As a result, Mr. Ran has absolute control over all corporate action. Even after this offering is completed, assuming we sell 2,830,000 shares in this offering, Mr. Ran will own 35.1% of our outstanding shares, which would still give him effective control over all corporate action. Such concentration of ownership could have an adverse impact on the market price of our common shares.

There is limited trading in our common shares, which could make it difficult for you to sell your common shares.

Our common shares are listed on The NASDAQ Capital Market. Average daily trading volume in our common shares from January 2 through July 8, 2014 was 13,400 shares. The lack of liquidity may make it more difficult for you to sell your common shares when you wish to do so. Even if an active trading market develops, the market price of our common shares may be highly volatile and could be subject to wide fluctuations after this offering and may fall below the offering price.

The market prices of our common shares may be adversely affected by future events.

Market factors unrelated to our performance could also negatively impact the market price of our common shares. One of the factors that investors may consider in deciding whether to buy or sell our common shares is our distribution rate as a percentage of our share price relative to market interest rates. If market interest rates increase, prospective investors may demand a higher distribution rate or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuations and conditions in the capital markets can affect the market value of our common shares. For instance, if interest rates rise, it is likely that the market price of our common shares will decrease as market rates on interest-bearing securities increase. Other factors that could negatively affect the market price of our common shares include:

our actual or projected operating results, financial condition, cash flows and liquidity, or changes in business strategy or prospects;
actual or perceived conflicts of interest with individuals, including our executive officers;
equity issuances by us, or share resales by our shareholders, or the perception that such issuances or resales may occur;
actual or anticipated accounting problems;

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changes in our earnings estimates or publication of research reports about us or the real estate industry;
changes in market valuations of similar companies;
adverse market reaction to any increased indebtedness we incur in the future;
additions to or departures of our key personnel;
speculation in the press or investment community;
our failure to meet, or the lowering of, our earnings’ estimates or those of any securities analysts;
increases in market interest rates, which may lead investors to demand a higher distribution yield for our common shares, if we have begun to make distributions to our shareholders, and would result in increased interest expenses on our debt;
changes in the credit markets;
failure to maintain our REIT qualification or exemption from the Investment Company Act;
actions by our shareholders;
price and volume fluctuations in the stock market generally;
general market and economic conditions, including the current state of the credit and capital markets;
sales of large blocks of our common shares;
sales of our common shares by our executive officers, directors and significant shareholders; and
restatements of our financial results and/or material weaknesses in our internal controls.

The price of our common shares is volatile, and purchasers of our common shares could incur substantial losses.

Over the 52 week period ended July 8, 2014, the price of our common shares on NASDAQ has ranged from $1.50 to $4.00 per share. The stock markets in general and the markets for real estate related stocks trading in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common shares. In the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Any such litigation brought against us could result in substantial costs, which would hurt our financial condition and results of operations, divert management’s attention and resources.

Common shares eligible for future sale may have adverse effects on our share price.

As of the date of this prospectus, we have outstanding options to purchase 110,000 common shares with exercise prices range from $1.01 to $2.92 per share, outstanding warrants to purchase 5,000 common shares at a price of $2.30 and outstanding warrants to purchase 20,000 common shares at a price of $2.50. Upon issuance, the common shares underlying these options and warrants would be immediately saleable. We cannot predict the effect, if any, the exercise of these options or the future sale of the common shares issuable upon the exercise of these options would have on the market price of our common shares. The market price of our common shares may decline significantly when the restrictions on resale or lock up agreements by certain of our shareholders lapse. Sales of substantial amounts of common shares or the perception that such sales could occur may adversely affect the prevailing market price for our common shares.

Subsequent to this offering, we may, from time-to-time, issue common shares and securities convertible into, or exchangeable or exercisable for, common shares to attract or retain key employees or in public offerings or private placements to raise capital. We are not required to offer any such shares or securities to existing shareholders on a preemptive basis. Therefore, it may not be possible for existing shareholders to participate in such future share or security issuances, which may dilute the existing shareholders’ interests in us.

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Future offerings of debt or equity securities, which would rank senior to our common shares, may adversely affect the market price of our common shares.

If we decide to issue debt or equity securities in the future, which would rank senior to our common shares, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common shares and may result in dilution to owners of our common shares. We and, indirectly, our shareholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common shares will bear the risk of our future offerings reducing the market price of our common shares and diluting the value of their stock holdings in us.

We have broad discretion in the use of the net proceeds of this offering and may allocate the net proceeds in a manner with which you may not agree.

We will have significant flexibility in deploying the net proceeds of this offering. You will not be able to evaluate the manner in which the net proceeds of this offering will be deployed or the credit-worthiness of any borrower to whom we make a loan. As a result, we may use the net proceeds of this offering in a manner with which you may not agree. Our failure to apply these proceeds effectively or find lending opportunities that meet our investment criteria in sufficient time or on acceptable terms could result in unfavorable returns and could cause a material adverse effect on our business, financial condition, liquidity and results of operations.

Risks Related to Our Organization and Structure

Certain provisions of New York law could inhibit changes in control.

Various provisions of the New York Business Corporation Law (NYBCL) may have the effect of deterring a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then-prevailing market price of our common shares. For example, we are subject to the “business combination” provisions of the NYBCL that, subject to limitations, prohibit certain business combinations (including a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities) between us and an “interested shareholder” (defined generally as any person who beneficially owns 20% or more of our then outstanding voting capital stock or an affiliate thereof for five years after the most recent date on which the shareholder becomes an interested shareholder. After the five-year prohibition, any business combination between us and an interested shareholder generally must be recommended by our board of directors and approved by the affirmative vote of a majority of the votes entitled to be cast by holders of outstanding shares of our voting capital stock other than shares held by the interested shareholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested shareholder. These provisions do not apply if holders of our common shares receive a minimum price, as defined under New York law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested shareholder for its common shares. They also do not apply to business combinations that are approved or exempted by a board of directors prior to the time that the interested shareholder becomes an interested shareholder.

Our authorized but unissued common and preferred shares may prevent a change in our control.

Our charter authorizes us to issue additional authorized but unissued common or preferred shares. After this offering is completed, we will have 17,687,810 authorized but unissued common shares (17,263,310 if the over-allotment option is exercised in full) and 5,000,000 authorized but unissued preferred shares, all of which are available for issuance at the discretion of our board of directors. As a result, our board of directors may establish a series of common or preferred shares that could delay or prevent a transaction or a change in control that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders.

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Our rights and the rights of our shareholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests.

Our certificate of incorporation limits the liability of our present and former directors to us and our shareholders for money damages to any breach of duty in such capacity, if a judgment or other final adjudication adverse to him establishes that his acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled or that his acts violated Section 719 of the NYBCL. Section 719 of the NYBCL limits directory liability to the following four instances:

declarations of dividends in violation of the NYBCL;
a purchase or redemption by a corporation of its own shares in violation of the NYBCL;
distributions of assets to shareholders following dissolution of the corporation without paying or providing for all known liabilities; and
making any loans to directors in violation of the BCL.

Our certificate of incorporation and bylaws authorizes us to indemnify our directors and officers for actions taken by them in those capacities to the maximum extent permitted by New York law. In addition, we may be obligated to pay or reimburse the defense costs incurred by our present and former directors and officers without requiring a preliminary determination of their ultimate entitlement to indemnification.

Our bylaws contain provisions that make removal of our directors difficult, which could make it difficult for our shareholders to effect changes to our management.

Our bylaws provide that, a director may be removed by either the board of directors or by shareholders for cause. Vacancies may be filled only by a majority of the remaining directors in office, even if less than a quorum, unless the vacancy occurred as a result of shareholder action, in which case the vacancy must be filled by a vote of shareholders at a special meeting of shareholders duly called for that purpose. These requirements make it more difficult to change our management by removing and replacing directors and may prevent a change in control of our company that is in the best interests of our shareholders.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “anticipate,” “estimate,” “expect,” “project,” “plan,” “seek,” “intend,” “believe,” “may,” “might,” “will,” “should,” “could,” “likely,” “continue,” “design,” and the negative of such terms and other words and terms of similar expressions are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We disclaim any duty to update any of these forward-looking statements after the date of this prospectus to confirm these statements in relationship to actual results or revised expectations.

All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this prospectus. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.

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USE OF PROCEEDS

We estimate that the net proceeds from the issuance and sale of our common shares in this offering will be approximately $8.9 million (or approximately $10.3 million if the representative exercises its over-allotment option in full), assuming an initial public offering price of $3.53 per share, which was the closing sale price of a common share on July 8, 2014, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are as follows:

To dilute the ownership interest of our largest single shareholder so that we can qualify as a REIT for federal income tax purposes. Currently, Assaf Ran, our chief executive officer owns 58.1% of our outstanding common shares. As a result, we are a “closely held” corporation as determined under Code section 856(h) ( i.e., five or fewer shareholders owning more than 50% of the value of the outstanding stock) and do not qualify as a REIT. However, assuming a sale of 2,830,000 common shares in this offering, we expect Mr. Ran’s ownership will be 35.1% immediately after this offering and that we will no longer be a “closely held” corporation under Code section 856(h).
To enable us to increase our loan portfolio. As a real estate finance company whose primary source of income is interest generated from our loan portfolio, the only way for us to increase our revenue is to increase the size of our loan portfolio.

In light of the foregoing, we intend to use the net proceeds from this offering primarily increase the size of our loan portfolio by making more loans and for working capital and general corporate purposes. However, as of the date of this prospectus, the outstanding balance on the Sterling credit line is $7.7 million. We are required to repay the outstanding balance on the Sterling credit line in excess of $7.0 million by August 14, 2014. All remaining amounts outstanding thereon will become due and payable on November 1, 2014. Currently, all amounts outstanding under the Sterling credit line bear interest at the rate of 6% per annum. Interest is payable monthly in arrears and we are current on all of our interest payments. In addition, as of the date of this prospectus, eight notes having an aggregate principal amount of $2.2 million will become due at various times between August 14, 2014 and July 29, 2015, including $860,000 that will become due on or before September 1, 2014. These notes bear interest at rates ranging from 6% to 14%.

As of the date hereof, we do not have commitment from Sterling or any other potential lender to refinance the Sterling credit line. If Sterling does not agree to extend the term of their credit line or if we cannot refinance the Sterling credit line before the amounts become due, we will either have to sell a portion of our loan portfolio or use proceeds from the repayment of our loans to repay the debt, either of which alternative would adversely affect our business because it would reduce the size of our loan portfolio. Similarly, we do not have any commitments from the note holders to extend the maturity dates on their notes. If a note holder refuses to extend the maturity date on its note, we will have to repay the note out of working capital. At March 31, 2014, we had less than $1,000 of cash and cash equivalents.

This expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions.

Pending the application of any portion of the net proceeds, we will invest such funds in interest bearing accounts and short-term, interest bearing securities that are consistent with our intention to qualify as a REIT and maintain our exemption from registration under the Investment Company Act. These investments are expected to provide lower returns than those we will seek to achieve from our loan portfolio.

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MARKET PRICE OF AND DIVIDENDS ON COMMON SHARES
AND RELATED SHAREHOLDER MATTERS

Market Information

Our common shares are traded on the NASDAQ Capital Market under the symbol “LOAN”. The high and low sales prices for our common shares as reported by the NASDAQ Capital Market for the quarterly periods during 2014, 2013 and 2012 were as follows:

   
  High   Low
2014
                 
Third Quarter (through July 8)   $ 4.00     $ 3.28  
Second Quarter   $ 3.39     $ 1.81  
First Quarter   $ 2.14     $ 1.58  
2013
                 
Fourth Quarter   $ 2.30     $ 1.65  
Third Quarter   $ 2.18     $ 1.42  
Second Quarter   $ 1.74     $ 1.20  
First Quarter   $ 1.50     $ 1.02  
2012
                 
Fourth Quarter   $ 1.12     $ 0.98  
Third Quarter   $ 1.05     $ 0.84  
Second Quarter   $ 1.17     $ 0.95  
First Quarter   $ 1.44     $ 0.90  

On July 8, 2014, the last reported sale price of our common shares on the NASDAQ Capital Market was $3.53 per share.

Holders

As of June 30, 2014, the approximate number of record holders of our common shares was 18. The number of holders does not include individuals or entities who beneficially own shares but whose shares, which are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one record holder. We believe we have over 1,000 beneficial shareholders.

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DIVIDENDS AND DISTRIBUTION POLICY

The holders of our common shares are entitled to receive dividends as may be declared from time to time by our board of directors. Payments of future dividends are within the discretion of our board of directors and depend on, among other factors, our retained earnings, capital requirements, operations and financial condition.

In 2003 we declared and paid an annual dividend of $0.25 per common share.

In 2004 we declared and paid an annual dividend of $0.28 per common share.

In 2005 we declared and paid an annual dividend of $0.40 per common share.

In 2013, we declared an annual dividend of $0.04 per common share payable in quarterly installments commencing on May 20, 2013.

In February 2014, we increased our annual dividend to $0.08 per common share, payable in quarterly installments commencing on May 20, 2014.

In June 2014, we announced an increase in our annual dividend to $0.28 per common share payable in quarterly installments, which commenced on July 15, 2014. We intend to maintain our latest annual dividend until the earlier of twelve months following completion of this offering or the effective date of our REIT election, unless actual results of operations, economic conditions or other factors differ materially from our historical operating results or our current assumptions.

In order to comply with certain REIT qualification requirements, we will be required, before the end of any REIT taxable year in which we have accumulated earnings and profits attributable to a non-REIT year, to declare a dividend to our shareholders to distribute such accumulated earnings and profits (a “Purging Distribution”). As of March 31, 2014, we had no accumulated earnings and profits attributable to a non-REIT year. Accordingly, if our REIT election is effective for 2014 we will not be required to make a Purging Distribution.

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 100% of our REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gains). U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. We intend to make distributions to our shareholders to comply with the REIT requirements of the Code.

For the period commencing with the completion of this offering through the day immediately prior to the effective date of our REIT election, we anticipate that our dividends will generally be treated as “qualified dividends.” Such dividends paid to U.S. shareholders that are individuals, trusts or estates will generally be taxable at the preferential income tax rates ( i.e. , the maximum U.S. federal rate) for qualified dividends. In addition, subject to the limitations of the Code, corporate shareholders may be eligible for the dividends received deduction with respect to such dividends. Once we qualify and elect to be taxed as a REIT, we anticipate that our distributions generally will be taxable as ordinary income to our shareholders, 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. We will furnish annually to each of our shareholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain.

Our loan agreement with Sterling National Bank does not contain any restrictions on our ability to make cash distributions to our shareholders.

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DILUTION

If you invest in our common shares in this offering, your interest will be immediately and substantially diluted to the extent of the difference between the public offering price per common share and the net tangible book value per common shares after giving effect to this offering. Our historical and pro forma net tangible book value as March 31, 2014 was $9,062,000, or $2.13 per common share outstanding. After giving effect to the sale of 2,830,000 shares in this offering at a price of $3.53 per share, the closing sale price of a common share on July 8, 2014, and after deducting underwriting discounts and commissions and other estimated offering expenses payable by us, our as adjusted net tangible book value at March 31, 2014 would have been approximately $18.0 million, or $2.54 per share. This represents an immediate increase in net tangible book value of approximately $0.41 per share to our existing shareholders, and an immediate dilution of $0.99 per share to investors purchasing common shares in this offering.

Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers of our common shares in this offering and the net tangible book value per share of our common share immediately after this offering.

The following table illustrates the per share dilution to investors purchasing shares in the offering:

   
Assumed public offering price per common share            $ 3.53  
Historical and pro forma net tangible book value per common share outstanding as of March 31, 2014   $ 2.13           
Increase in historical and pro forma net tangible book value per common share outstanding attributable to new investors     0.41        
Pro forma as adjusted net tangible book value per common share outstanding after this offering           2.54  
Dilution per common share to new investors            $ 0.99  

The information above assumes the representative does not exercise its overallotment option. If the representative exercises its over-allotment option in full, our as adjusted net tangible book value will increase to $2.58 per share, representing an immediate dilution of $0.95 per share to shareholders purchasing common shares in this offering, assuming that a public offering price of $3.53 per share.

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CAPITALIZATION

The following table sets forth our cash and capitalization as of March 31, 2014:

on an actual basis;
on a pro forma basis to give effect to the following, all of which occurred in July 2014: (i) a $700,000 increase in the Sterling credit line; (ii) a $900,000 increase in outstanding borrowings under short-term notes; and (iii) a $1.6 million increase in short-term notes receivable; and
on an as adjusted, basis giving effect to the issuance and sale of 2,830,000 shares in this offering at a public offering price of $3.53 per share, the closing sale price of a common share on July 8, 2014, after deducting the estimated underwriting commissions and discounts and other offering expenses.

You should read this table together with the information contained in this prospectus, including “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes included elsewhere in this prospectus.

     
  As of March 31, 2014
     (Actual)   (Pro
Forma)
  (As Adjusted)
Shareholders’ equity:
                 
Preferred shares, $0.01 par value, 5,000,000 shares authorized, no shares issued   $     $     $  
Common shares, $0.001 par value, 25,000,000 shares authorized; 4,433,190 shares issued and 4,256,190 outstanding actual and pro forma; and 7,263,190 shares issued and 7,086,190 shares outstanding, pro forma as adjusted (1)     4,433       4,433       7,263  
Additional paid in capital     9,748,664       9,748,664       18,645,834  
Treasury shares, at cost, 177,000 common shares     (369,335 )       (369,335 )       (369,335 )  
Accumulated deficit     (321,952 )       (321,952 )       (321,952 )  
Total shareholders’ equity   $ 9,061,810     $ 9,061,810     $ 17,961,810  
Total capitalization   $ 9,061,810     $ 9,061,810     $ 17,961,810  

(1) Common shares issued and outstanding as adjusted do not include 49,000 shares issued after March 31, 2014 upon exercise of options.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following tables summarize our consolidated financial data for the periods indicated. You should read the following financial information together with the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes to those consolidated financial statements appearing elsewhere in this prospectus. The selected consolidated balance sheet data as of March 31, 2014 and the selected consolidated statements of operations and cash flow data for the three months ended March 31, 2014 and 2013 were derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The following selected historical consolidated financial information are qualified in their entirety by reference to, and should be read in conjunction with, our audited consolidated financial statements and related notes and the information under “Management’s Discussion and Analysis of Financial Condition and results of Operations” and other financial information included in this prospectus. Historical results included below and elsewhere in this prospectus are not necessarily indicative of our future performance and the results for any interim period are not necessarily indicative of the operating results to be expected for the full fiscal year.

Operating data:

       
  Year Ended
December 31,
  Three Months Ended
March 31,
     2013   2012   2014   2013
               (unaudited)
Interest income from loans   $ 1,858,033     $ 1,475,800     $ 507,371     $ 444,779  
Origination fees   $ 401,514     $ 339,767     $ 101,539     $ 89,582  
Total revenue   $ 2,259,547     $ 1,815,567     $ 608,910     $ 534,361  
Interest and amortization of debt service costs   $ 442,661     $ 280,654     $ 116,423     $ 102,646  
General and administrative expenses   $ 837,788     $ 864,398     $ 175,996     $ 172,867  
Total operating costs and expenses   $ 1,282,128     $ 1,151,185     $ 292,528     $ 276,109  
Income from operations   $ 977,419     $ 664,382     $ 316,382     $ 258,252  
Net income   $ 582,967     $ 388,610     $ 208,269     $ 173,139  
Basic and diluted net income per common share outstanding   $ 0.14     $ 0.09     $ 0.05     $ 0.04  
Weighted average number of common shares outstanding:
                                   
- Basic     4,269,169       4,320,050       4,256,190       4,283,218  
- Diluted     4,289,818       4,326,329       4,286,673       4,295,658  

Balance Sheet Data:

   
  December 31, 2013   March 31,
2014
          (unaudited)
Cash and cash equivalents   $ 1,021,023     $ 931  
Short term loans receivable   $ 10,697,950     $ 12,517,000  
Total current assets   $ 11,908,996     $ 12,740,571  
Long term loans receivable   $ 3,997,000     $ 3,058,950  
Total assets   $ 16,124,454     $ 16,035,479  
Short term loans   $ 1,319,465     $ 1,319,465  
Line of credit   $ 5,350,000     $ 5,300,000  
Total liabilities, all current   $ 7,231,767     $ 6,973,669  
Accumulated deficit   $ (487,660 )     $ (321,952 )  
Total stockholders’ equity   $ 8,892,687     $ 9,061,810  

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Cash flow data:

       
  Year Ended
December 31,
  Three Months Ended
March 31,
     2013   2012   2014   2013
               (unaudited)
Net cash (used in) provided by operating activities   $ 785,757     $ 533,399     $ (29,030 )     $ (21,412 )  
Net cash (used in) provided by investing activities   $ (1,070,584 )     $ (4,210,014 )     $ (881,000 )     $ 1,090,366  
Net cash (used in) provided by financing activities   $ 1,065,157     $ 3,695,403     $ (110,062 )     $ (1,073,134 )  
Cash and cash equivalents, end of period   $ 1,021,023     $ 240,693     $ 931     $ 236,513  

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto contained elsewhere in this prospectus. 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 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. We intend to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes, beginning with our tax year ending December 31, 2014, or as soon as possible thereafter.

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 face amounts of the loans we originate historically have ranged from $14,000 to a maximum amount of $1.3 million. Our board of directors recently 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) $1.4 million. Our loans have an initial term of one year and bear interest at a flat rate of 12% to 15% per year. In addition, we usually receive origination fees or “points” ranging from 1% to 3% 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, typically 80% of construction costs.

Since commencing this business in 2007, we have made over 290 loans, have 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.

At March 31, 2014, our loan portfolio included 65 loans with an aggregate loan amount of $18.0 million of which $15.6 million was outstanding. The difference, $2.4 million, represents unfunded commitments for future advances under construction loans and repayments of principal. The principal amounts of the loans range from $30,000 to $1.0 million.

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 current lack of liquidity in the commercial real estate, financial and credit markets presents significant opportunities for us to selectively originate high-quality first mortgage loans on attractive terms and that these 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 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, loan brokers and a limited amount of

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newspaper advertising and direct mail. 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 independent construction inspectors.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our 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.

We recognize 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, we recognize 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 is recognized, as earned, over the loan period.

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

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of long lived assets, including intangible assets and goodwill, may not be recoverable. When such events or changes in circumstances occur, 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 our 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 prospectus, which contain accounting policies and other disclosures required by U.S. GAAP.

Results of operations

Three months ended March 31, 2014 compared to three months ended March 31, 2013

Revenue

Total revenues for the three month period ended March 31, 2014 were $609,000 compared to $534,000 for the three month period ended March 31, 2013, an increase of $75,000 or 14%. The increase in revenue represents an increase in lending operations. In 2014, $507,000 of our revenue was interest income compared to $445,000 for the same period in 2013, and $102,000 constituted origination fees compared to $90,000 for the same period in 2013.

Interest and amortization of debt service costs

Interest and amortization of debt service costs for the three month period ended March 31, 2014 was $116,000 compared to $103,000 for the three month period ended March 31, 2013, an increase of $13,000 or 12.6%. The increase in interest and amortization of debt service costs was primarily attributable to our use of the Sterling credit line, offset by the repayment of our senior secured notes.

Referral fees

Referral fees for the three months ended March 31, 2014 were $100 compared to $600 for the three months ended March 31, 2013. Referral fees are amortized over the life of the loan to which they relate.

General and administrative costs

General and administrative expenses for the three month period ended March 31, 2014 were $176,000 compared to $173,000 for the three month period ended March 31, 2013.

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Other income

Other income for each of the three month periods ended March 31, 2014 and 2013 was $7,000, which represents the fees generated from the seller buy back options.

Income before income tax expense

Income before provision for income tax for the three months ended March 31, 2014 was $323,000 compared to $265,000 for the three months ended March 31, 2013, an increase of $58,000 or 21.9%. This increase is primarily attributable to the increase in revenue, offset by the increase in interest expense and general and administrative expenses.

Income tax expense

For the three month period ended March 31, 2014, we had income tax expense of $115,000 compared to $92,000 for the three month period ended March 31, 2013.

Net income

Net income for the three month period ended March 31, 2014 was $208,000 compared to $173,000 for the three month period ended March 31, 2013, an increase of 20.2%.

Years Ended December 31, 2013 and 2012

Revenue

Total revenue for the year ended December 31, 2013 was $2,260,000 compared to $1,816,000 for the year ended December 31, 2012, an increase of $444,000 or 24.4%. The increase in revenue represents an increase in lending operations. In 2013, $1,858,000 of our revenue represented interest income on our loan portfolio compared to $1,476,000 in 2012, and $402,000 represented origination fees on such loans compared to $340,000 in 2012.

Interest and amortization of debt service costs

Interest and amortization of debt service costs for the year ended December 31, 2013 were approximately $443,000 compared to approximately $281,000 for the year ended December 31, 2012, an increase of $162,000 or 57.7%. The increase in interest and amortization of debt service costs was primarily attributable to the Sterling credit line.

Referral fees

Referral fees for the year ended December 31, 2013 were $2,000 compared to $6,000 for the year ended December 31, 2012. Referral fees are amortized over the life of the loan to which they relate.

General and administrative expenses

General and administrative expenses for the year ended December 31, 2013 were $838,000 compared to $864,000 for the year ended December 31, 2012, a decrease of $26,000, or 3.0%. The decrease is primarily attributable to a decrease in legal fees resulting from the settlement of a derivative action, offset by increases in NASDAQ fees and in travel and meal expenses.

Other income

Other income for each of the years ended December 31, 2013 and 2012 was $28,000. On March 21, 2011, we purchased three 2-family buildings located in the Bronx, New York for $675,000, including related costs, and sold to the seller a one year option to buy back the properties for the same price (the “Buy Back Option”). The Buy Back Option was sold for $3,900, plus a monthly fee of $10,530 payable to us by the option holder for the life of the option. On September 28, 2011, the option holder partially exercised the Buy Back Option with respect to one of the properties for $380,679. On October 1, 2011, we issued a new one year option for the two remaining properties at an aggregate exercise price of $294,321 with a monthly option fee of $4,591 (the “New Option”). On October 21, 2011, the option holder partially exercised the New Option to buy back one of the two remaining properties for $147,500 and had a continuing option, though October 1, 2012, to purchase the one remaining property at an exercise price of $146,821 with a monthly option fee of $2,296. Subsequently, the New Option’s expiration date was extended twice, on October 1, 2012,

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which extended the expiration date through March 30, 2013, and again on April 1, 2013, which extended the expiration date through September 30, 2013. The New Option expired on September 30, 2013, and we continue to receive option fee payments on a month-to-month basis from the former option holder.

Write-down of investment in privately held company

The write-down related to an investment we made in a privately held Israeli-based company that offers surgeons and radiologists the ability to detect cancer in real time. Due to the fact that the privately held company is experiencing delays in executing its business plan, we determined to write down the value of our investment to $65,000 at December 31, 2013, resulting in a charge to the statement of operations of $35,000 during the year ended December 31, 2013.

Income before income tax expense

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

Income tax expense

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

Net income

Net income for the year ended December 31, 2013 was $583,000 compared to net income of $389,000 for the prior year. This represents a 49.9% increase in net income year-to-year.

Liquidity and Capital Resources

At March 31, 2014, we had cash and cash equivalents of less than $1,000 and working capital of $5,767,000. At December 31, 2013, we had cash and cash equivalents of $1,021,000 and working capital of $4,677,000. The decrease in cash and cash equivalents primarily reflects an increase in our loan portfolio. The increase in working capital is primarily attributable to the decrease in long-term loans receivable.

For the three months ended March 31, 2014 net cash used in operating activities was $29,000, compared to $21,000 of net cash used in operating activities for the three months ended March 31, 2013. The increase in net cash used in operating activities primarily results from an increase in interest receivable on loans and a decrease in accounts payable and accrued expenses, offset by an increase in net income and a decrease in income taxes payable.

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

For the three months ended March 31, 2014 net cash used in investing activities was $881,000, compared to $1,090,000 provided by investing activities for the three months ended March 31, 2013. Net cash used in investing activities for the three month period ended March 31, 2014, consisted of the issuance of our short term commercial loans in the amount of $4,774,000, offset by collection of commercial loans in the amount of $3,983,000. Net cash provided by investing activities for the three month period ended March 31, 2013, consisted of collection of commercial loans in the amount of $3,944,000, offset by the issuance of our short term commercial loans in the amount of $2,854,000.

For the year ended December 31, 2013 net cash used in investing activities was $1,071,000, compared to $4,210,000 for the year ended December 31, 2012. Net cash used in investing activities for the year ended December 31, 2013, consisted primarily of the issuance of our short term commercial loans in the amount of $15,159,000, offset by collection of these loans in the amount of $14,089,000. Net cash used in investing activities for the year ended December 31, 2012, consisted primarily of the issuance of our short term commercial loans in the amount of $15,174,000, offset by collection of these loans in the amount of $10,963,000.

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For the three months ended March 31, 2014 net cash used in financing activities was $110,000, compared to $1,073,000 used in financing activities for the three months ended March 31, 2013. Net cash used in financing activities for the three months ended March 31, 2014 reflects the repayments on Sterling credit line in the amount of $50,000, the dividend payment of $43,000 and the capital raising costs in the amount of $18,000. Net cash used in financing activities for the three months ended March 31, 2013 reflects the repayments of the short term loans and line of credit in the aggregate amount of $1,040,000 and the purchase of treasury stock in the amount of $38,000, offset by the proceeds from exercise of stock options in the amount of $5,000.

For the year ended December 31, 2013 net cash provided by financing activities was $1,065,000, compared to $3,695,000 for the year ended December 31, 2012. Net cash provided by financing activities for the year ended December 31, 2013 reflects $1,850,000 of loan proceeds drawn from the Sterling credit line, the proceeds of short a term loan of $160,000, and the proceeds from exercise of stock options of $23,000, offset by the repayments of senior secured notes of $500,000 and one short term loan of $240,000, the purchase of treasury shares of $99,000 and the dividend payments of approximately $128,000. Net cash provided by financing activities for the year ended December 31, 2012 reflects our receipt of the proceeds of short term loans and draws on the Sterling credit line totaling $3,740,000, offset by purchase of treasury stock in the amount of $29,000 and by the deferred financing costs on Sterling credit line in the amount of $16,000.

On May 2, 2012, we entered into a one-year revolving Line of Credit Agreement with Sterling National Bank pursuant to which Sterling agreed to advance up to $3.5 million against assignments of mortgages and other collateral. In addition, Assaf Ran, our chief executive officer personally guaranteed the repayment of the amounts due under the line. The interest rate on the credit line is 2.0% in excess of the Wall Street Journal prime rate (3.25% at March 31, 2014), but in no event less than 6.0%, per annum, on the money in use. On January 31, 2013, we entered into an amendment to the Line of Credit Agreement to increase the credit line to $5.0 million, under the same terms as the original line of credit. In connection with this amendment, Mr. Ran agreed to increase his personal guarantee to $5 million. Effective on May 1, 2013 and July 1, 2013, the term of the credit line was extended through July 1, 2013 and July 1, 2014, respectively. On December 13, 2013, the Line of Credit Agreement was further amended to increase the credit line to $7.0 million, under the same terms as the original line of credit. In connection with this second amendment, Mr. Ran agreed to increase his personal guarantee to $7.0 million. On June 24, 2014, the maturity date of the Sterling line of credit was extended to October 29, 2014. On July 15, 2014, the line of credit was increased to $7.7 million and the maturity date was extended to November 1, 2014. However, the maximum amount we can draw upon under the line of credit decreases to $7.0 million on August 14, 2014 and we must repay any excess amount outstanding on that date. In addition, Mr. Ran agreed to increase his personal guarantee to $7.7 million. On March 31, 2014 the outstanding balance on the Sterling credit line was $5.3 million compared to $5.35 million at December 31, 2013. As of the date of this prospectus, the outstanding balance on the Sterling line of credit is $7.7 million.

Under its terms, advances under the credit line are required to be used exclusively to fund short-term commercial loans constituting first liens made to independent arms-length third party mortgagors to fund acquisition or construction by such mortgagors of investment real estate in the Metropolitan New York area. Sterling has the right to approve all aspects of each loan. The maximum amount of each advance is limited to the lower of (i) 70% of the appraised value of the mortgaged premises and (ii) the unpaid principal balance of the loan. However, Sterling has the absolute right to reduce this percentage, in its sole discretion, based on the creditworthiness of the borrower. Mortgage loans more than 30 days past due or outstanding more than 18 months are ineligible for funding. Sterling’s obligation to fund is subject to the following conditions:

No event of default exists with respect to the loan that is being financed;
No more than 20% of all the mortgage loans financed through the credit line have been outstanding for more than one year;
Mortgage loans to any one affiliated group cannot exceed 25% of our capital or 25% of the total portfolio of outstanding mortgage loans;
Construction loans with outstanding permits may not exceed 40% of all outstanding mortgage loans;

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No pending or threatened lawsuits against the borrower or guarantor; and
Receipt of certain information relating to the borrower and the property, including an appraisal (if the amount of the advance exceeds $250,000), financial and credit information regarding the borrower, title insurance binder, rent roll and leases and loan transaction documents.

In addition to the Sterling credit line, at March 31, 2014 we also had short-term loans outstanding in the amount of $1.3 million. These loans are evidenced by six notes as follows:

       
Note   Issue
Date
  Maturity
Date
  Principal Amount   Interest
Rate
1     03/17/11       03/16/15     $ 333,845.25       8 %  
2     03/18/11       03/18/15     $ 100,000.00       10 %  
3     06/14/11       06/13/14*     $ 325,619.91       8 %  
4     07/29/11       07/29/14**     $ 200,000.00       10 %  
5     12/03/12       12/03/14     $ 200,000.00       10 %  
6     09/01/13       09/01/14     $ 160,000.00       10 %  

* Extended to June 13, 2015 on June 24, 2014.
** Extended to July 29, 2015 on July 17, 2014.

In addition, in July 2014, we borrowed an additional $900,000 on a short-term basis as follows:

       
Note   Issue
Date
  Maturity Date   Principal Amount   Interest
Rate
7     July 14, 2014       July 13, 2015     $ 200,000       6.0 %  
8     July 15, 2014       August 14, 2014     $ 700,000       14.0 %  

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 continually project anticipated cash requirements for our operating and financing needs as well as cash flows generated from operating activities available to meet these needs. Our short-term cash requirements primarily include payments for usual and customary operating and administrative expenses, such as employee compensation, rent, sales and marketing expenses and dividends. Based on this analysis, we believe that our current cash balances, the amount available to us under the Sterling credit line and our anticipated cash flows from operations will be sufficient to fund the operations for the next 12 months. However, we expect our working capital requirements to increase over the next 12 months as we continue to strive for growth.

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 100% of our REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gains).

Our long-term cash needs will include principal payments on outstanding indebtedness and payments for acquisitions. Funding for long-term cash needs will come from our cash on hand after this offering is completed, operating cash flows, proceeds from the sale of debt and equity securities, and unused capacity of the Sterling credit line or any replacement thereof.

Contractual Obligations

The following table sets for our contractual obligations as of December 31, 2013:

         
  Total   Less than
1 year
  1 – 3 years   3 – 5 years   More than
5 years
Operating Lease Obligations   $ 109,800       40,300       69,500     $     $  

(*) Includes utilities payable to the landlord under the lease.

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Recent Technical Accounting Pronouncements

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

In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The ASU is intended to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. This guidance adds new disclosure requirements for items reclassified out of accumulated other comprehensive income (AOCI). It does not amend any existing requirements for reporting net income or OCI in the financial statements. The standard is effective prospectively for public entities for annual and interim reporting periods beginning after December 15, 2012. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

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

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

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

We do not believe that any other recently issued, but not yet effected, accounting standards if currently adopted would have a material effect on our consolidated financial statements.

Quantitative and qualitative disclosures about market risk

We seek to manage our risks related to the credit quality of our loan portfolio, interest rates and liquidity while, at the same time, seeking to provide an opportunity to shareholders to realize attractive risk-adjusted returns through ownership of our capital stock. While we do not seek to avoid risk completely, we believe the risk can be quantified and seek to actively manage that risk to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake. Our analysis of risks is based

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on our experience, estimates and assumptions. Actual economic conditions or implementation of our decisions may produce results that differ significantly from the estimates and assumptions used in our models and our historical operating results as shown in this prospectus.

Credit risk management

Through our underwriting and lending strategy, we seek to limit our credit losses. To date, we have never had a default. Nevertheless, we retain the risk of potential credit losses on all of our outstanding loans. We seek to manage this risk through employment of our extensive due diligence and rigorous underwriting processes and standards and through the judicious use of leverage. With respect to any particular loan transaction, we will, to the extent applicable, perform the following: (i) property level underwriting, including an extensive review of property history and current and projected revenue and expenses, as well as a comprehensive analysis of rent rolls, lease abstracts and credit of tenants; (ii) a market review, including a review of the existing/projected supply and demand characteristics of the particular market, including competitive property analysis, recent leases/trends, projected valuation compared to recent sales, and replacement cost analysis; (iii) borrower analysis, and (iv) cash flow analysis. In addition to taking a first mortgage lien on the property to secure the loan, we enhance our security with personal guaranties from the principals of the borrower, which, in turn, are collaterally secured by a pledge of the guarantors’ interests in the borrower. Following funding of the loan, we rigorously monitor borrower performance and compliance with the terms of the loan. To the extent we detect any potential credit or legal risks that may be mitigated or resolved prior to impairment of the loan we look to take immediate remedial action.

Liquidity risk management

Liquidity risk is the risk of being unable to preserve stable, reliable, and cost-effective funding sources to meet all near-term and projected long-term financial obligations. In addition to the equity funding provided by our shareholders, our external funding sources consists primarily of a secured line of credit from Sterling National Bank, which enables us to draw funds on an as-needed basis at a relatively low interest rate — the higher of (i) prime plus 2.0% and (ii) 6.0%. On July 15, 2014, the line of credit was increased to $7.7 million and the maturity date was extended to November 1, 2014. However, the maximum amount we can draw upon under the line of credit decreases to $7.0 million on August 14, 2014 and we must repay any excess amount outstanding on that date. As of March 31, 2014, the total amount drawn on the credit line was $5.30 million and, as of the date of this prospectus, the outstanding balance is $7.7 million. The credit line is secured by an assignment of various loans in our portfolio and is personally guaranteed by Assaf Ran, our chief executive officer.

The Sterling credit line allows for flexible usage as funds will be repaid and re-drawn as we generate cash through interest payments and repayments of principals and as we make additional loans. Sterling has already increased the credit line twice since it was first made available to us in 2012. However, we cannot assure you that Sterling will be amenable to increasing or extending the maturity of the credit line and we have no contingency funding plan to ensure that liquidity is available on a continuous basis even during disruptions in the capital markets of the type experienced in recent years.

Interest rate risk

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We will be subject to interest rate risk in connection with our loan portfolio as well as with our indebtedness. In general, we expect to originate loans with the net proceeds from this offering and draw downs on the Sterling credit line. We mitigate interest rate risk by lending on a short-term basis at relatively high interest rates. Nevertheless, in the event of a significant rising interest rate environment and/or economic downturn, delinquencies and defaults could increase and result in loan losses to us, which could adversely affect our liquidity and operating results. Further, such delinquencies or defaults could have an adverse effect on the spread between the yield on our loan portfolio and our borrowing costs.

Our operating results will depend in large part on differences between the yield on our loan portfolio and our cost of borrowing. Currently, all of the loans in our portfolio are earning interest at a fixed rate between 12% and 15% while under the Sterling credit line, our cost of funds is based on floating tied to the prime rate

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(but in no event less than 6.0%). Thus, during a period of rising interest rates, our borrowing costs generally will increase while the yields on our loan portfolio will remain flat, which is likely to result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on a number of factors including maturity dates of the loans in our portfolio, our ability to originate new loans at higher interest rates as well as the magnitude and duration of the interest rate increase.

Prepayment risk

Prepayment risk is the risk that principal will be repaid at a different rate than anticipated, causing the return on an asset to be less than expected. In order to mitigate this risk, many lenders charge pre-payment premiums or penalties. Since most of our loans are short-term, i.e., a term of less than one year, historically prepayments have not been a major risk for us. Our loans, by their terms, are not prepayable until they have been outstanding for at least three months. After that, the borrowers have the right to prepay the loan at any time without premium or penalty.

Extension risk

Extension risk is the risk that borrowers will elect to extend the term of loan beyond its stated maturity date. In a rising interest rate environment this poses a risk to the lender unless the borrower has to pay a premium to extend or the interest rate is adjusted to the prevailing market rate. Our typical loan does not give the borrower a right to extend. However, historically we have agreed to extend the maturity date on some of our loans. In consideration, we receive an extension fee and, in some cases, an adjustment to the interest rate.

Market risk

Real Estate Risk .  As a lender, we are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. Decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans or loans, as the case may be, which could also cause us to suffer losses. We try to mitigate these risks with personal guarantees from the principals of the borrower, which are collaterally secured by real estate as well.

Market Value Risk .  We have never sold a loan that we originated. However, we have pledged or assigned certain loans to secure our obligations under the Sterling credit line. In addition, conceivably in the future we may have to sell loans in our portfolio to raise cash to pay down debt or make distributions to our shareholders. In such instances the value of our portfolio is a factor. The estimated fair value of loans in our portfolio will fluctuate primarily due to changes in interest rates and other factors. Generally, in a rising interest rate environment, the estimated fair value of loans would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of loans would be expected to increase. As market volatility increases or liquidity decreases, the fair value of our assets may be adversely impacted.

Risk management

To the extent consistent with maintaining our REIT qualification, we will seek to manage risk exposure to protect our loan portfolio against the effects of prepayments, defaults, extensions, interest rate volatility, credit spread movements and liquidity risks. Our efforts to manage risk will focus on monitoring our portfolio and managing the financing, interest rate, credit, prepayment and extension risks associated with our loan portfolio. We generally seek to manage this risk by:

attempting to structure our financing agreements to maintain maximum flexibility on our part to manage our leverage ratio;
attempting to structure our loans so that we are fully secured and protected against credit, prepayment and extension risk;
employing a disciplined credit and due diligence culture that is designed to protect and preserve capital; and
maintaining a healthy spread between the yield on our loan portfolio and our borrowing costs.

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BUSINESS

Overview

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. We intend to elect to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes beginning with our taxable year ending December 31, 2014, or as soon as possible thereafter.

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 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 originate historically ranged from $14,000 to a maximum of $1.3 million. Our board of directors recently 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) $1.4 million. Our loans typically have a maximum initial term of one year and bear interest at a flat rate of 12% to 15% per year. In addition, we usually receive origination fees or “points” ranging from 1% to 3% 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 80% of construction costs.

Since commencing this business in 2007, we have never had to foreclose on a property and none of our loans have ever gone into default, although sometimes we have renewed or extended the tem of a loan to enable the borrower to avoid premature sale or refinancing of the property. When we renew or extend a loan we generally receive additional “points” and other fees.

Our 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. 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 newspaper advertising.

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, fund loans secured by first mortgages on real estate located in the New York metropolitan area and to carefully 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 the current lack of liquidity in the commercial real estate, financial and credit markets presents significant opportunities for us to selectively originate high-quality first mortgage loans on attractive terms and that these 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.

We are organized as a New York corporation and currently operate as a C-corporation for federal, state and city income tax purposes. As a result, we have been able to re-invest our net after-tax profits back into our business. However, we believe that it would be in the best interests of our shareholders if we operated as a REIT for U.S. federal income tax purposes. As a REIT, we will be able to distribute more of our profits to our shareholders. Thus, assuming that we will qualify as a REIT after this offering, we intend to elect REIT status as soon as possible after this offering is consummated. We cannot assure you that we will qualify as a

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REIT or that, even if we do qualify initially, we will be able to maintain REIT status for any particular period of time. 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.

The Market Opportunity

Residential and commercial real estate are capital-intensive businesses that rely heavily on debt capital to develop, improve, construct, acquire, maintain and refinance properties. We believe that demand for residential and commercial real estate debt financing, together with a reduction in the supply of traditional bank financing, presents compelling opportunities to generate attractive returns for an established, well-financed, non-bank lender like us. Many traditional commercial real estate lenders that have historically competed for loans within our target market, i.e., the New York metropolitan area, are facing tighter capital constraints due to changes in banking regulations such as the Basel III accords and the Dodd-Frank Wall Street Reform and Consumer Protection Act. In this environment, characterized by a supply-demand imbalance for financing and stabilizing 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 well capitalized commercial real estate lenders to originate attractively priced loans with strong credit fundamentals. Particularly in the New York metropolitan area, where real estate values in many neighborhoods are rapidly rising 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 borrower and our ability to close quickly make us an attractive alternative to banks and other large institutional lenders for small real estate developers and owners. This opportunity has been enhanced by the continuing reluctance of many banks and large commercial lenders to make real estate loans to other than the most credit-worthy borrowers because of their diminished balance sheet capacity or tightened mortgage underwriting standards.

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 or real estate located in the New York metropolitan area 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 to direct or indirect investments 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 lack of 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
operate so as to qualify as a REIT and for an exemption from registration under the Investment Company Act.

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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 market conditions. We expect that the experience of our management team will provide us with the ability to effectively deploy our capital 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 also refer new leads to us. So 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 New York metropolitan area real estate market 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, the creditworthiness of the owner of the property (and its principals) and the availability of other forms of collateral.
Vertically-integrated loan origination platform.   We manage and control the loan process from origination through closing with our own personnel or independent legal counsel and appraisers, with whom we have long relationships, who together constitute a team highly experienced in credit evaluation, underwriting and loan structuring. We also believe that our procedures and experience allows 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, and, upon completion of this offering, we do not expect to have, any adverse credit exposure to, nor our performance to 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 commercial and multi-family real estate property in the New York metropolitan area. We pursue lending opportunities with purchasers and prospective purchasers of commercial and multi-family properties and property owners who require short-term financing for renovation or repositioning ( e.g., converting a property from commercial to residential use) of a real estate asset. Many of these properties are undergoing transition, including lease-up, sell-out, renovation or repositioning. 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, in the case of a construction loan, where all or a portion of the loan proceeds are to be used to fund the costs of constructing improvements on the property, only a portion of the loan may be funded at closing. At March 31, 2014, our loan portfolio included

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11 construction loans under which we had a total funding commitment of $4,073,000, the aggregate amount outstanding was $3,000,000 and our unfunded commitment was $724,000. The difference between the total funding commitment, on the one hand, and the amount outstanding plus the unfunded commitment, $350,000, represents repayments of principal. Advances under construction loans are funded against requests supported by all required documentation (including lien waivers) 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.

Our strategy is to service and manage the loans we originate until they are paid. We have never sold any of our loans nor do we intend to do so. Similarly, we have not purchased, nor do we intend to purchase, loans from other lenders. All of our loans are secured by properties located in the New York metropolitan area, which is where we are based. We have no intention at this time to attempt to expand into any other geographic market. All of the properties we finance are either residential or commercial and are held 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  — Historically, $14,000 to $1.3 million. Our board of directors recently established a policy limiting 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) $1.4 million.

Loan-to-Value Ratio  — Up to 75%.

Interest rate  — A fixed rate typically 12% to 15%.

Term  — Generally, one year with early termination in the event of a sale of the property. Generally, there is no right to extend.

Prepayments  — Borrower may prepay the loan at any time beginning three months after the funding date.

Covenants  — To timely pay all taxes, insurance, assessments, and similar charges with respect to the property; to maintain hazard insurance; to maintain and protect the property.

Events of default  — Include: (i) failure to make payment when due; (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 1% to 3% of the loan amount. If we agree to extend the term of loan, we usually collect the same origination we charged on the initial funding of the loan. In addition, borrowers 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, as is typical in the real estate finance transactions, the borrower pays all expenses relating to obtaining the loan including the cost of a property appraisal, the cost of an environmental assessment report, the cost of credit report and all title, recording fees and legal fees.

Operating Data

Our lending activities increased each year since 2007, the first year we started making real estate loans. We believe our business will continue to grow given the strength of the New York real estate market and our reputation among property owners and investors as a reliable and reasonable financing source.

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Our loan portfolio

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

     
  Year Ended
December 31,
  Three Months
Ended
March 31,
2014
($ in thousands)   2013   2012
Loans originated   $ 15,159     $ 15,174     $ 4,774  
Loans repaid   $ 14,089     $ 10,963     $ 3,893  
Mortgage lending revenues   $ 2,260     $ 1,816     $ 609  
Mortgage lending expenses   $ 444     $ 287     $ 117  

       
  Year Ended
December 31,
  Three Months Ended
March 31,
($ in thousands)   2013   2012   2014   2013
Number of loans outstanding     60       72       65       66  
Principal amount of loans earning interest   $ 14,695     $ 13,624     $ 15,576     $ 12,534  
Average outstanding loan balance   $ 245     $ 189     $ 240     $ 190  
Percent of loans secured by New York area properties (1)     100.0 %       98.6 %       98.5 %       100.0 %  
Weighted average contractual interest rate     12.6 %       13.2 %       12.6 %       13.0 %  
Weighted average term to maturity (in months) (2)     4.83       6.25       5.65       5.60  

(1) Calculated based on the number of loans.
(2) Without giving effect to extension options.


 

At March 31, 2014 we had loans outstanding to two affiliated groups of borrowers, which, together accounted for 21.4% of our loan portfolio. One group consisted of eight borrowers, each of which was at least 60% owned by the same individual, and the second group consisted of six borrowers, each of which was at least 25% owned by the same individual. The aggregate outstanding principal balance on the loans to the first group was $1,719,000, representing 11% of our loan portfolio and the aggregate outstanding principal balance on the loans to the second group was $1,625,000, representing 10.4% of our loan portfolio. Similarly, at December 31, 2013 we had loans outstanding to two affiliated groups of borrowers, which, together accounted for 25.5% of our loan portfolio. One group consisted of eight borrowers, each of which was at least 50% owned by the same individual, and the second group consisted of six borrowers, each of which was at least 25% owned by the same individual. The aggregate outstanding principal balance on the loans to the first group was $1,989,000, representing 13.5% of our loan portfolio and the aggregate outstanding principal balance on the loans to the second group was $1,762,000, representing 12.0% of our loan portfolio. The composition of the groups at March 31, 2014 and December 31, 2013 are not identical but the controlling person of each group at March 31, 2014 and December 31, 2013 is the same.

The following table sets forth information regarding the types of properties securing our mortgage loans outstanding at March 31, 2014 and 2013, and the interest earned in each category (dollars in thousands):

           
  2014   2013
     Number of
Loans
  Interest
Earned
  Percentage   Number of
Loans
  Interest
Earned
  Percentage
Residential     57     $ 376       87 %       58     $ 326       89 %  
Commercial     2       37       9 %       1       12       3 %  
Mixed Use     5       17       4 %       7       30       8 %  
Other     1       0       0 %       0       0       0 %  
Total     65     $ 430       100 %       66     $ 368       100 %  

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The following table sets forth information regarding the types of properties securing our mortgage loans outstanding at December 31, 2013 and 2012, and the interest earned in each category (dollars in thousands):

           
  2013   2012
     Number of
Loans
  Interest
Earned
  Percentage   Number of
Loans
  Interest
Earned
  Percentage
Residential     52     $ 968       82 %       66     $ 785       85 %  
Commercial     3       140       12 %       1       25       3 %  
Mixed Use     5       72       6 %       5       115       12 %  
Total     60     $ 1,180       100 %       72     $ 925       100 %  

Our Origination Process and Underwriting Criteria

We primarily rely on our relationships with existing and former borrowers, real estate investors, real estate brokers 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 usually require a third party appraisal and a third party assessment report. 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 principles 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 insurance, in a form satisfactory to us, for the underlying property. We require a personal guarantee from the principal or principals of the borrower.

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. We do not sell or offer participating interests in our loans. In addition to this offering, our principal capital raising transactions have consisted of the following:

Credit line .  We have a $7.7 million credit line with Sterling National Bank, of which $5.3 million was outstanding at March 31, 2014 and $7.7 million is outstanding as of the date of this prospectus. The outstanding balance accrues interest at a rate equal to the greater of (i) prime plus 2% and (ii) 6% per annum. The credit line is secured by assignment of mortgages and other collateral and is guaranteed by Assaf Ran, our chief executive officer. The credit line expires on November 1, 2014. However, the maximum amount we can draw upon under the line of credit decreases to $7.0 million on August 14, 2014 and we must repay any excess amount outstanding on that date. We previously had a $300,000 credit line from Valley National Bank, which we repaid in full in 2011.

Short-term loans .  Over the last five years, we have raised an aggregate of $2.7 million through the sale of short and medium-term promissory notes. Senior secured notes having an aggregate principal amount of $500,000 were repaid in full in 2013. Six Short-term notes having an aggregate principal amount of $1.3 million and bearing interest at either 8% or 10% were outstanding at March 31, 2014. As of the date of this prospectus, eight short-term notes having an aggregate principal amount of $2.2 million and bearing

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interest from 6% to 14% are outstanding. All these notes will mature prior to July 29, 2015, including $860,000 that becomes due on or before September 1, 2014.

The following table shows our sources of capital, including our financing arrangements, and our loan portfolio as of March 31, 2014:

 
Sources of Capital ($ in thousands):  
Debt:
        
Short-term loans   $ 1,319  
Line of credit     5,300  
Total debt   $ 6,619  
Other liabilities     354  
Capital (equity)     9,062  
Total sources of capital   $ 16,035  
Assets:
        
Loans:
        
Short-term loans   $ 12,517  
Long-term loans     3,059  
Total loans   $ 15,576  
Other assets     459  
Total assets   $ 16,035  

Competition

The commercial real estate finance market 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, 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.

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.

Sales and Marketing

We do not employ any sales marketing personnel nor do we engage any third parties for sales and marketing. Instead we rely on our chief executive officer to generate lending opportunities as well as referrals from existing or former borrowers, real estate brokers, mortgage brokers and other bankers. In addition, we make use of newspaper advertising and direct mail to generate lending opportunities. A principal source of new transactions has been repeat business from prior customers and their referral of new business.

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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 (USPTO) including the following marks relating to our current business:

Manhattan Bridge Capital
DAG Funding Solutions

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 the date of this prospectus, we have two full-time employees.

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, 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.

Regulatory Reform

The Dodd-Frank Act, which went into effect on July 21, 2010, is intended to make significant structural reforms to the financial services industry. For example, pursuant to the Dodd-Frank Act, various federal agencies have promulgated, or are in the process of promulgating, regulations with respect to various issues that may affect us. Certain regulations have already been adopted and others remain under consideration by various governmental agencies, in some cases past the deadlines set in the Dodd-Frank Act for adoption. At the present time, we do not believe any regulations adopted under the Dodd-Frank Act apply to us. However, it is possible that regulations that will be adopted in the future will apply to us or that existing regulations will apply to us as our business evolves.

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, at the time of this offering we are not 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 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. Real estate mortgages are excluded from the term “investment securities.”

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We will 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.” The SEC generally requires that, for the exception provided by Section 3(c)(5)(C) to be available, 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 additional qualifying interests or real estate-type interests (with no more than 20% of the entity’s assets comprised of miscellaneous assets). At the present time, we qualify for the exemption 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 qualify as 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.

Legal Proceedings

We are not currently a party to any material legal proceedings.

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CORPORATE STRUCTURE — REIT STATUS

We are taxable as a regular domestic C corporation for U.S. federal income tax purposes ( i.e ., we are subject to taxation at regular corporate rates). Following the completion of this offering, we intend to elect to be taxed as a REIT, assuming we meet all of the qualifications of a REIT. Our qualification to be taxed as a REIT will depend on our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code, relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our shares. Prior to this offering we do not satisfy the diversity of ownership requirement, which provides, in part, that an entity cannot qualify as a REIT if five or fewer persons own 50% or more of the equity interest in the entity at any time during the last six months of a taxable year. Prior to this offering our chief executive officer owns more than 50% of outstanding common shares. One of the primary purposes of this offering is to dilute the interest of our chief executive officer to such an extent that we will be able to meet the diversity of ownership requirement of a REIT. Assuming the offering accomplishes this result, we believe that immediately following this offering we will be organized in conformity with the requirements for qualification and taxation as a REIT under the Code and that our intended manner of operation will enable us to meet the requirements for qualification and taxation as a REIT. If the offering is consummated on or before December 31, 2014, we will rely on a one time exemption from the six-month rule described above.

So long as we qualify to be taxed as a REIT, we generally will not be subject to U.S. federal income tax on our net taxable income that we distribute to our shareholders. If we fail to qualify to be taxed as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate rates and will be precluded from re-electing to be taxed as a REIT for the subsequent four taxable years following the year during which we lose our REIT qualification. Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income or property, and the income of our “taxable REIT subsidiaries” will be subject to taxation at regular corporate rates.

In order to comply with certain REIT qualification requirements, we are required to distribute all of our non-REIT accumulated earnings and profits, before the end of our first REIT taxable year.

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MANAGEMENT

Directors and Executive Officers

Our executive officers and directors and their respective ages are as follows:

   
Name   Age   Position
Assaf Ran     48       Chairman of the Board, Chief Executive Officer, and President  
Vanessa Kao     36       Chief Financial Officer, Vice President, Treasurer and Secretary  
Michael Jackson (1) (2)     49       Director  
Eran Goldshmit (1)     47       Director  
Mark Alhadeff     50       Director  
Lyron Bentovim (3)     44       Director  

(1) Member of the Compensation Committee, Audit Committee and Nominating Committee.
(2) Chairman of the Audit Committee.
(3) Member of the Audit Committee.

All directors hold office until the next annual meeting of shareholders and until their successors are duly elected and qualified. Officers are elected to serve subject to the discretion of the board of directors.

Set forth below is a brief description of the background and business experience of our executive officers and directors:

Assaf Ran , our founder, has been our chief executive officer and president since our inception in 1989. Mr. Ran has 25 years of senior management experience leading public and private companies. Mr. Ran started several yellow page businesses and managed each one of them successfully. Mr. Ran’s professional experience and business background, his contacts and business relationships, and the fact that he is our founder and has been our only chief executive officer give him the expertise needed to serve as one of our directors.

Vanessa Kao has been our chief financial officer, vice president, treasurer and secretary since rejoining us in June 2011. From July 2004 through April 2006 she served as our assistant chief financial officer. From April 2006 through December 2013, she was the chief financial officer of DAG Jewish Directories, Inc. Since January 2014, she has also served as the chief financial officer of Jewish Marketing Solutions, LLC. Ms. Kao holds a M.B.A. in Finance and MIS/E-Commerce from the University of Missouri and a Bachelor degree of Business Administration in Finance from the National Taipei University in Taiwan.

Michael J. Jackson has been a member of our board of directors since July 2000. Since April 2007, he has been the chief financial officer and the executive vice president of iCrossing, Inc., a digital marketing agency. From October 1999 to April 2007, he was the executive vice president and chief financial officer of AGENCY.COM, a global Internet professional services company. He served as the chief accounting officer of AGENCY.com from May 2000 and as its corporate controller from August 1999 until September 2001. From October 1994 until August 1999, Mr. Jackson was a manager at Arthur Andersen, LLP and Ernst and Young. Mr. Jackson also served on the New York State Society Auditing Standards and Procedures Committee from 1998 to 1999 and served on the New York State Society’s SEC Committee from 1999 to 2001. Mr. Jackson holds an M.B.A. in Finance from Hofstra University and is a certified public accountant. For the five years ending May 2008, Mr. Jackson was a member of the board of directors of Adstar, Inc. (OTC PINK: ADST). Mr. Jackson’s professional experience and background with other companies and with us have given him the expertise needed to serve as one of our directors.

Eran Goldshmit has been a member of our board of directors since March 1999. Mr. Goldshmit received certification as a financial consultant in February 1993 from the School for Investment Consultants, Tel Aviv, Israel, and a BA in business administration from the University of Humberside, England, in December 1998. From December 1998 until July 2001, Mr. Goldshmit was the general manager of the Carmiel Shopping Center in Carmiel, Israel. Since August 2001, he has been the president of the New York Diamond Center, New York, NY. Mr. Goldshmit’s professional experience and background with other companies and with us have given him the expertise needed to serve as one of our directors.

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Mark Alhadeff has been a member of our board of directors since December 2005. He also served as the chief technology officer of DAG Interactive, Inc. Mr. Alhadeff is a co-founder of Ocean-7 Development, Inc., a technology corporation in the business of providing programming services as well as web development services and database solutions and has served as its president since its formation in 1996. Prior to founding Ocean-7, Mr. Alhadeff served as a consultant to various publishers, worked as an art director and was actively involved in creating and implementing the transition to digital production methodologies before they became common industry practice. Mr. Alhadeff is a Stony Brook University graduate. Mr. Alhadeff’s business experience and background with other companies and with us have given him the expertise needed to serve as one of our directors.

Lyron Bentovim has been a member of our board of directors since December 2008. Mr. Bentovim currently is the chief financial officer of NIThealth a position he has held since March 2014. From July 2013 to January 2014 Mr. Bentovim served as chief financial officer and chief operating officer and managing director at Cabrillo Advisors. From August 2009 until July 2012, Mr. Bentovim has served as the chief operating officer and the chief financial officer of Sunrise Telecom Inc, a leader in test and measurement solutions for telecom, wireless and cable networks. From January 2002 through August 2009, Mr. Bentovim was a portfolio manager for Skiritai Capital LLC, an investment advisor based in San Francisco. Mr. Bentovim has over 20 years of industry experience, including his experience as a member of the board of directors at RTW Inc., Ault Inc, Top Image Systems, Three-Five Systems Inc., Sunrise Telecom, Inc. and Argonaut Technologies Inc. Prior to his position in Skiritai Capital LLC, Mr. Bentovim served as the president, chief operating officer and co-founder of WebBrix Inc. Additionally Mr. Bentovim was a senior engagement manager with strategy consultancies USWeb/CKS, the Mitchell Madison Group LLC and McKinsey & Company Inc. Mr. Bentovim has a MBA from Yale School of Management and a law degree from the Hebrew University. Mr. Bentovim's professional experience and background with other companies and with us have given him the expertise needed to serve as one of our directors.

Director Independence

Our board of directors is comprised of Assaf Ran, Michael J. Jackson, Eran Goldshmit, Mark Alhadeff, and Lyron Bentovim.

The board of directors has determined, in accordance with NASDAQ’s Stock Market Rules, that: (i) Messrs. Jackson, Goldshmit and Bentovim (the “Independent Directors”) are independent and represent a majority of its members; (ii) Messrs. Jackson, Goldshmit and Bentovim, as the members of the Audit Committee, are independent for such purposes; and (iii) Messrs. Jackson and Goldshmit, as the members of the Compensation Committee, are independent for such purposes. In determining director independence, our board of directors applies the independence standards set by the NASDAQ. In its application of such standards the board of directors takes into consideration all transactions with Independent Directors and the impact of such transactions, if any, on any of the Independent Directors’ ability to continue to serve on our board of directors. To that end, for the fiscal year ended 2013, our board of directors considered the options awarded to the Independent Directors disclosed below and determined that those transactions were within the limits of the independence standards set by NASDAQ and did not impact their ability to continue to serve as Independent Directors.

Committees of the Board of Directors

We have three standing committees: an Audit Committee, a Compensation Committee and a Corporate Governance and Nominating Committee. Each committee is made up entirely of independent directors as defined under the NASDAQ Stock Market Rules. The members of the Audit Committee are Michael Jackson, who serves as chairman, Eran Goldshmit and Lyron Bentovim. The members of the Compensation Committee and the Corporate Governance and Nominating Committee are Michael Jackson and Eran Goldshmit. Current copies of each committee’s charter are available on our website at www.manhattanbridgecapital.com .

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Audit Committee.   The Audit Committee oversees our accounting and financial reporting processes, internal systems of accounting and financial controls, relationships with auditors and audits of financial statements. Specifically, the Audit Committee’s responsibilities include the following:

selecting, hiring and terminating our independent auditors;
evaluating the qualifications, independence and performance of our independent auditors;
approving the audit and non-audit services to be performed by the independent auditors;
reviewing the design, implementation and adequacy and effectiveness of our internal controls and critical policies;
overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to our financial statements and other accounting matters;
with management and our independent auditors, reviewing any earnings announcements and other public announcements regarding our results of operations; and
preparing the report that the Securities and Exchange Commission requires in our annual proxy statement.

The members of the Audit Committee are Michael Jackson, who serves as chairman, Eran Goldschmidt and Lyron Bentovim. The board of directors has determined that Michael Jackson is qualified as an Audit Committee Financial Expert pursuant to Item 407(d)(5) of Regulation S-K. Each Audit Committee member is independent, as that term is defined in Section 10A(m)(3) of the Exchange Act and their relevant experience is more fully described above.

Compensation Committee.   The Compensation Committee assists the Board in determining the compensation of our officers and directors. Specific responsibilities include the following:

approving the compensation and benefits of our executive officers;
reviewing the performance objectives and actual performance of our officers; and
administering our stock option and other equity and incentive compensation plans.

The Compensation Committee is comprised entirely of directors who satisfy the standards of independence applicable to compensation committee members established under 162(m) of the Code and Section 16(b) of the Exchange Act.

Corporate Governance and Nominating Committee.   The corporate governance and nominating committee assists the board by identifying and recommending individuals qualified to become members of the board. Specific responsibilities include the following:

evaluating the composition, size and governance of our Board and its committees and making recommendations regarding future planning and the appointment of directors to our committees;
establishing a policy for considering shareholder nominees to our Board;
reviewing our corporate governance principles and making recommendations to the Board regarding possible changes; and
reviewing and monitoring compliance with our code of ethics and insider trading policy.

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EXECUTIVE COMPENSATION

The following Summary Compensation Table sets forth all compensation earned, in all capacities, during the years ended December 31, 2013 and 2012 by Assaf Ran, our chief executive officer (the “named executive officer”) and sole executive officer whose salary during the last completed fiscal year exceeded $100,000.

Summary Compensation Table

           
Name and Principal Position   Year   Salary   Bonus   Non Equity Incentive Plan Compensation   All Other
Compensation (1)
  Total
Assaf Ran,
chief executive officer and president
    2013     $ 225,000     $ 65,000     $ 6,750     $ 6,750     $ 296,750  
    2012     $ 225,000     $ 65,000     $ 6,750     $ 6,750     $ 296,750  

(1) Company’s matching contributions are made pursuant to a simple master IRA plan.


 

Employment Agreement

In March 1999, we entered into an employment agreement with Assaf Ran, our president and chief executive officer pursuant to which: (i) Mr. Ran’s employment term renews automatically on June 30 th of each year for successive one-year periods unless either party gives to the other written notice at least 180 days prior to June 30 th of its intention to terminate the agreement; (ii) Mr. Ran receives an annual base salary of $225,000 and annual bonuses as determined by the Compensation Committee of the board 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. If the employment agreement is terminated by Mr. Ran for “good reason” (as defined in the employment agreement) he shall be paid (1) his base compensation up to the effective date of such termination; (2) his full share of any incentive compensation payable to him for the year in which the termination occurs; and (3) a lump sum payment equal to 100% of the average cash compensation paid to, or accrued for, him in the two calendar years immediately preceding the calendar year in which the termination occurs.

Restricted Stock Grant

On September 9, 2011, we granted 1,000,000 shares of restricted common shares (the “Restricted Shares”) to Mr. Ran, our chief executive officer. Under the terms of the restricted shares agreement (the “Restricted Shares Agreement”), Mr. Ran agreed to forfeit options held by him exercisable for an aggregate of 280,000 common shares with exercise prices above $1.21 per share and agreed not to exercise additional options held by him for an aggregate of 210,000 shares of common shares with exercise prices below $1.21 per share all of which expired unexercised in March 2014. 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 one-third of the Restricted Shares, September 9, 2027 with respect to an additional one-third of the Restricted Shares and September 9, 2028 with respect to the final one-third of the Restricted Shares; (ii) the date on which Mr. Ran’s employment is terminated for any reason other than for “Cause” (as such term is defined in his employment agreement); 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 by 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

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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 chief executive officer. Also Mr. Ran advised the Compensation Committee that he would not seek future stock option grants.

Termination and Change of Control Arrangement

In the event of termination, Mr. Ran does not receive any severance and any non-vested options are automatically forfeited. 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. If Mr. Ran is terminated for any reason other than for cause, the Restricted Shares become immediately transferable.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information concerning outstanding equity awards by the named executive officer as of December 31, 2013.

           
Name   Year of Grant   Number of Securities Underlying Unexercised Options
(#) Unexercisable
  Option Exercise Price
($)
  Option Expiration Date   Number of Shares or Units of Stock That Have Not Vested
(#)
  Market Value
of Shares or
Units of Stock
That Have Not Vested
($)
Assaf Ran,
chief executive officer and president
    2009       140,000 (1)     $ 0.74       3/18/2014              
    2011                                  1,000,000       1,710,000 (2) (3)  

(1) Options expired unexercised in March 2014.
(2) Calculated based on the closing market price of $1.71 at the end of the last completed fiscal year on December 31, 2013.
(3) 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 one-third of the Restricted Shares, September 9, 2027 with respect to an additional one-third of the Restricted Shares and September 9, 2028 with respect to the final one-third of the Restricted Shares; (ii) the date on which Mr. Ran’s employment is terminated by us for any reason other than for “Cause;” or (iii) on 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 Mr. Ran voluntarily terminates his employment for any reason other than death or disability, Mr. Ran will forfeit that portion of the Restricted Shares which have not previously vested.


 

Equity Compensation Plan Information

On June 23, 2009 we adopted the 2009 Stock Option Plan (the “Plan”) which replaced the 1999 Stock Option Plan as amended (the “Prior Plan”), which expired in May of 2009. All options granted under the Prior Plan expired or were cancelled or were exercised as of March 31, 2014.

The purpose of the Plan is to align the interests of our officers, other key employees, consultants and non-employee directors and those of our subsidiaries, if any, with those of our shareholders to afford an incentive to such officers, employees, consultants and directors to continue as such, to increase their efforts on our behalf and to promote the success of our business. The availability of additional shares will enhance our ability to achieve these goals and to attract qualified employees. The basis of participation in the Plan is upon discretionary grants of awards by the board of directors.

The Plan is administered by the Compensation Committee of the board of directors. The maximum number of common shares reserved for the grant of awards under the Plan was originally 200,000 but has since been increased to 400,000, subject to adjustment as provided in Section 9 of the Plan. As of June 1, 2014, approximately seven persons were eligible to participate in the Plan, consisting of two executive officers and five directors (of whom four are non-affiliated directors). The board of directors has resolved not to grant any options to Mr. Ran until all of the Restricted Shares have vested.

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At March 31, 2014, options covering 145,000 common shares granted under the Plan were outstanding and 255,000 common shares were available for future grants. Since March 31, 2014, options for 49,000 shares were exercised and options for 7,000 shares expired unexercised. Consistent with past practice, in July 2014, we issued an aggregate of 21,000 options to our independent directors.

Amendment and Termination of the Plan

The Board may at any time, and from time to time, suspend or terminate the Plan in whole or in part or amend it from time to time.

Exercise Price

The exercise price of an option granted under the Plan may be no less than the fair market value of a common share on the date of grant, unless, with respect to nonqualified stock options that are not intended as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended from time to time, otherwise determined by the Compensation Committee. However, incentive stock options granted to a ten percent shareholder must be priced at no less than 110% of the fair market value of our common shares on the date of grant and their term may not exceed five years. All options granted under the Plan are for a term of no longer than ten years unless otherwise determined by the Compensation Committee. The Compensation Committee also determines the exercise schedule of each option grant.

Federal Income Tax Consequences

The following is a brief summary of the effect of federal income taxation upon the recipients and us with respect to the shares under the Plan and does not purport to be complete.

Non-qualified Stock Options.   The grant of non-qualified stock options will have no immediate tax consequences to us or the grantee. The exercise of a non-qualified stock option will require a grantee to include in his gross income the amount by which the fair market value of the acquired shares on the exercise date (or the date on which any substantial risk of forfeiture lapses) exceeds the option price. Upon a subsequent sale or taxable exchange of the shares acquired upon exercise of a non-qualified stock option, a grantee will recognize long or short-term capital gain or loss equal to the difference between the amount realized on the sale and the tax basis of such shares. We will be entitled (provided applicable withholding requirements are met) to a deduction for Federal income tax purposes at the same time and in the same amount as the grantee is in receipt of income in connection with the exercise of a non-qualified stock option.

Incentive Stock Options.   The grant of an incentive stock option will have no immediate tax consequences to us or our employee. If the employee exercises an incentive stock option and does not dispose of the acquired shares within two years after the grant of the incentive stock option nor within one year after the date of the transfer of such shares to him (a “disqualifying disposition”), he will realize no compensation income and any gain or loss that he realizes on a subsequent disposition of such shares will be treated as a long-term capital gain or loss. For purposes of calculating the employee's alternative minimum taxable income, however, the option will be taxed as if it were a non-qualified stock option.

Compensation of Directors

Each non-employee director is granted, upon first being elected as a member of the board of directors and each time they are re-elected, five-year options to purchase 7,000 common shares at an exercise price equal to the fair market value of a common share on the date of grant. Each also receives cash compensation of $600 per board meeting attended and $300 for any other committee participation. Assaf Ran and Mark Alhadeff do not receive compensation in connection with their positions on our board of directors.

In 2013, the board of directors designated a special committee to review and authorize the final settlement documents in a derivative lawsuit filed on our behalf, and appointed Phillip Michals who resigned as a director on April 2, 2014, and Lyron Bentovim as the members of such committee with cash compensation of $1,500 each.

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