10-Q 1 d23932_10q.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 2000 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________ to ____________ Commission File Number 0-22153 ---------- AMERITRANS CAPITAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 52-2102424 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 747 Third Avenue Fourth Floor New York, New York 10017 (Address of Registrant's (Zip Code) principal executive office) Registrant's telephone number, including area code: (800) 214-1047 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of Common Stock, par value $.0001 per share, outstanding as of November 13, 2000: 1,745,600 AMERITRANS CAPITAL CORPORATION FORM 10-Q Table of Contents PART I. FINANCIAL INFORMATION Item 1. Financial Statements Report of Independent Accountants.................................. 1 Consolidated Balance Sheets as of September 30, 2000 (unaudited) and June 30, 2000 ................................. 2 Consolidated Statements of Operations -- For the Three Months Ended September 30, 2000 and 1999 (unaudited) ................. 4 Consolidated Statements of Cash Flows -- For the Three Months Ended September 30, 2000 and 1999 (unaudited) .......... 5 Notes to Consolidated Financial Statements ...................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................. 15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K .................................. 17 Signatures ........................................................ 18 -ii- PART I FINANCIAL INFORMATION Report of Independent Accountants To the Board of Directors and Stockholders of Ameritrans Capital Corporation and Subsidiaries We have reviewed the accompanying consolidated balance sheet of Ameritrans Capital Corporation and Subsidiaries as of September 30, 2000, and the related consolidated statements of income and cash flows for the three month periods ended September 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of June 30, 2000, and the related consolidated statement of income, comprehensive income, stockholders' equity and cash flows for the year then ended (not presented herein), and in our report dated September 7, 2000 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of June 30, 2000, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. The consolidated financial statements include loans valued at $57,061,533 as of September 30, 2000, whose values have been estimated by the Board of Directors in the absence of readily ascertainable market values. We have reviewed the procedures used by the Board of Directors in arriving at their estimate of the value of such loans and have inspected underlying documentation and, in the circumstances, we believe the procedures are reasonable and the documentation is appropriate. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for such loans existed, and the difference could be material. New York, NY November 9, 2000 /s/ Marcum & Kliegman, LLP AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2000 (Unaudited) and June 30, 2000 ASSETS
September 30, 2000 June 30, 2000 ------------------ ------------- Loans receivable ................................... $ 57,633,533 $ 56,806,579 Less: allowance for loan losses .................... (572,000) (380,000) ------------ ------------ 57,061,533 56,426,579 Cash and cash equivalents .......................... 504,647 376,507 Accrued interest receivable ........................ 796,487 928,765 Assets acquired in satisfaction of loans ........... 666,555 609,106 Receivables from debtors on sales of assets acquired in satisfaction of loans ....................... 736,736 743,954 Equity securities .................................. 670,762 631,974 Furniture, fixtures and leasehold improvements, net 102,556 110,019 Prepaid expenses and other assets .................. 508,329 467,720 ------------ ------------ TOTAL ASSETS ................... $ 61,047,605 $ 60,294,624 ============ ============
The accompanying notes are an integral part of these financial statements. -2- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2000 (Unaudited) and June 30, 2000 LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 2000 June 30, 2000 ------------------ ------------- LIABILITIES Debentures payable to SBA .......................... $ 8,880,000 $ 8,880,000 Notes payable, banks ............................... 38,500,000 37,800,000 Accrued expenses and other liabilities ............. 405,697 365,328 Accrued interest payable ........................... 290,131 365,270 ----------- ----------- TOTAL LIABILITIES ............................. 48,075,828 47,410,598 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY Common stock, $.0001 par value: 5,000,000 shares authorized; 1,745,600 shares issued and outstanding, 175 175 Additional paid-in-capital ......................... 13,471,474 13,471,474 Accumulated deficit ................................ (637,306) (725,057) Accumulated other comprehensive income ............. 137,434 137,434 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY .................... 12,971,777 12,884,026 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $61,047,605 $60,294,624 =========== ===========
The accompanying notes are an integral part of these financial statements. -3-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended September 30, 2000 and 1999 Three Months Ended Three Months Ended September 30, 2000 September 30, 1999 ------------------ ------------------ INVESTMENT INCOME Interest on loans receivable $1,548,345 $1,404,270 Fees and other income 75,983 114,561 ----------- ----------- TOTAL INVESTMENT INCOME 1,624,328 1,518,831 ----------- ----------- OPERATING EXPENSES Interest 962,499 727,184 Salaries and employee benefits 141,494 145,009 Legal fees 38,291 94,968 Miscellaneous administrative expenses 183,066 196,676 Loss on assets acquired in satisfaction of loans, net 14,588 59 Directors' fee 250 15,000 Bad debt expense 194,298 -- ----------- ----------- TOTAL OPERATING EXPENSES 1,534,486 1,178,896 ----------- ----------- OPERATING INCOME 89,842 339,935 NET INCOME BEFORE INCOME TAXES 89,842 339,935 INCOME TAXES 2,091 3,211 ----------- ----------- NET INCOME $ 87,751 $336,724 =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING Basic 1,745,600 1,745,600 =========== =========== Diluted 1,750,684 1,749,894 =========== =========== NET INCOME PER COMMON SHARE Basic $.0503 $.1929 =========== =========== Diluted $.0501 $.1924 =========== ===========
The accompanying notes are an integral part of these financial statements -4- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended September 30, 2000 and 1999
September 30, 2000 September 30, 1999 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 87,751 $ 336,724 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,541 10,990 Increase in accrued interest receivable 132,278 (68,424) Increase in prepaid expenses and other assets (46,722) (195,547) Increase in accrued expenses and other liabilities 40,369 70,349 Increase (decrease) in accrued interest payable (75,139) (51,229) ----------- ----------- TOTAL ADJUSTMENTS 66,327 (233,861) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 154,078 102,863 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Net change in loans receivable, assets acquired in satisfaction of loans and receivables from debtors on sales of assets acquired in satisfaction of loans (685,185) (2,606,780) Purchases (sales) of equity securities (38,788) (30,000) Acquisition of furniture, fixtures and leasehold improvements (1,965) (43,240) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (725,938) (2,680,020) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable, banks, net 700,000 2,350,000 Dividends paid (314,208) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES $ 700,000 $2,035,792 ----------- -----------
The accompanying notes are an integral part of these financial statements. -5- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), Continued For the Three Months Ended September 30, 2000 and 1999 September 30, 2000 September 30, 1999 ------------------ ------------------ NET (DECREASE) IN CASH AND CASH EQUIVALENTS $ 128,140 $ (541,365) CASH AND CASH EQUIVALENTS - Beginning 376,507 542,290 ----------- ----------- CASH AND CASH EQUIVALENTS - Ending $504,647 $ 925 =========== =========== The accompanying notes are an integral part of these financial statements. -6- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- Organization and Summary of Significant Accounting Policies Financial Statements The consolidated balance sheet of Ameritrans Capital Corporation (the "Company") as of September 30, 2000, the related statements of operations, and cash flows for the three months ended September 30, 2000 and September 30, 1999 included in Item 1 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements include all adjustments (consisting of normal, recurring adjustments) necessary to summarize fairly the Company's financial position and results of operations. The results of operations for the three months ended September 30, 2000 are not necessarily indicative of the results of operations for the full year or any other interim period. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Elk's Annual Report on Form 10-K for the fiscal year ended June 30, 2000 as filed with the Commission. Organization and Principal Business Activity Ameritrans Capital Corporation ("Ameritrans"), a Delaware corporation acquired all of the outstanding shares of Elk Associats Funding Corporation ("Elk") on December 16, 1999 in a share for share exchange. Prior to the acquisition, Elk had been operating independently and Ameritrans had no operations. The historical financial statements prior to December 16, 1999 were those of Elk. Elk, a New York corporation, is licensed by the Small Business Administration ("SBA") to operate as a small Business Investment Company ("SBIC") under the Small Business Investment Act of 1958, as amended. Elk has also registered as an investment company under the Investment Company Act of 1940 to make business loans. Ameritrans is a specialty finance company that through its subsidiary, Elk makes loans to taxi owners, to finance the acquisition and operation of the medallion taxi businesses and related assets, and to other small businesses in the New York City, Chicago, Miami, and Boston markets. Basis of Consolidation The consolidated financial statements include the accounts of Ameritrans, Elk and EAF Holding Corporation ("EAF"), a wholly owned subsidiary of Elk, collectively referred to as the "Company". All significant inter-company transactions have been eliminated in consolidation. EAF was formed in June 1992 and began operations in December 1993. The purpose of EAF is to own and operate certain real estate assets acquired in satisfaction of loans by Elk. Ameritrans organized another subsidiary on June 8, 1998, Elk Capital Corporation ("Elk Capital"), which may engage in similar lending and investment activities. Since inception, Elk Capital had no operations and activities. Loans and the Allowance for Loans Losses Loans are stated at cost, net of participation with other lenders, less an allowance for possible losses. This amount represents the fair value of such loans as determined in good faith by the Board of Directors. The allowance for loan losses is maintained at a level that, in the Board of Directors' judgement, is adequate to absorb losses inherent in the portfolio. The allowance for loan losses is reviewed and adjusted periodically by the Board of Directors on the basis of available information, including the fair value of the collateral held, existing risk of individual credits, past loss experience, the volume, composition and growth of the portfolio, and current and projected economic conditions. Because of the inherent uncertainty in the estimation process, the estimated fair values of the loans may differ significantly from the values that would have been used had a ready market existed for such loans and the differences could be material. As of September 30, 2000 and June 30, 2000 approximately 79% of all loans are collateralized by New York City, Boston, Chicago, and Miami taxicab medallions. Accounting Standard for Impairment of Loans Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 114 as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosure", a loan is determined to be impaired if it is probable that the contractual amounts due will not be collected in accordance with the terms of the loan. The SFAS generally requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. As all of the Company's loans are collateral dependent, impairment is measured based on the fair value of the collateral. If the fair value of the impaired loan is less than the recorded investment in the loan (including accrued interest, net of deferred loan fees or costs, and unamortized premium or discount) the Company recognized an impairment by creating a valuation allowance with a corresponding charge to the provision for loan losses. The Company individually evaluates all loans for impairment. 7 Loans Receivable Loans are placed on nonaccrual status once they become 180 days past due as to principle or interest. In addition, loans that are not fully collateralized and in the process of collection are placed on nonaccrual status when, in the judgement of management, the ultimate collectibility of interest and principal is doubtful. Cash and Cash Equivalents For the purposes of the statement of cash flows, the Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. The Company has cash balances in banks in excess of the maximum amount insured by the FDIC as of September 30, 2000 and June 30, 2000. Income Taxes The Company has elected to be taxed as a Regulated Investment Company under the Internal Revenue Code. A Regulated Investment Company will generally not be taxed at the corporate level to the extent its income is distributed to its stockholders. In order to be taxed as a Regulated Investment Company, the Company must pay at least 90 percent of its net investment company taxable income to its stockholders as well as meet other requirements under the Code. In order to preserve this election for fiscal 2000, the Company intends to make the required distributions to its stockholders in accordance with applicable tax rules. Depreciation and Amortization Depreciation and amortization of furniture, fixtures and leasehold improvements is computed on the straight-line method at rates adequate to allocate the cost of applicable assets over their expected useful lives. Net Income per Share During the year ended June 30, 1999, the Company adopted the provision of Statements of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 eliminates the presentation of primary and fully dilutive earnings per share ("EPS") and requires presentation of basic and diluted EPS. Basic EPS is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock and common stock equivalents outstanding at year end. At September 30, 2000 and June 30, 2000 the Company has 133,336 options outstanding which resulted in common stock equivalents of 5,084 and 5,084 shares, respectively. Loan Costs Loan costs are included in prepaid expenses and other assets. Amortization of loan costs is computed on the straight-line method over ten (10) years. At September 30, 2000 and June 30, 2000, loan costs amounted to $98,762 and $104,877, respectively, net of accumulated amortization of $145,218 and $139,105, respectively. Amortization expense for the periods ended September 30, 2000 and June 30, 2000 was $6,114 and $24,455, respectively. 8 Assets Acquired in Satisfaction of Loans Assets acquired in satisfaction of loans are carried at estimated fair value less selling costs. Losses incurred at the time of foreclosure are charged to the allowance for loan losses. Subsequent reductions in estimated net realizable value are recorded as losses on assets acquired in satisfaction of loans. Use of Estimates in the Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses and the fair value of financial instruments. Comprehensive Income During the year ended June 30, 1999, the Company adopted SFAS No. 130 "Reporting Comprehensive Income". SFAS 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Stock-Based Compensation In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was issued. SFAS 123 prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using the existing accounting rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB25") and related interpretations with pro forma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. The Company intends to continue to account for its stock based compensation plans in accordance with the provisions of APB 25. Business Segment During the year ended June 30, 1999, the Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", which supersedes SFAS No. 14, "Financial Reporting for Segments of A Business Enterprise". SFAS No. 131 establishes standards for the way the public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company has determined that under SFAS No. 131, it operates in one segment of financing services. The Company's customers and operations are within the United States. 9 Loan Sales and Servicing Fee Receivable SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" was issued in June 1996. SFAS 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. This statement also provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. It requires that liabilities and derivatives incurred or obtained by transferors as part of a transfer of finanical assets be initially measured at fair value. SFAS 125 also requires that servicing assets be measured by allocating the carrying amount between the assets sold and retained interest based on their relative fair values at the date of transfer. Additionally, this statement requires that the servicing assets and liabilities be subsequently measured by (a) amortization in proportion to and over the period of estimated net servicing income or loss and (b) assessment for asset impairment or increased obligation based on their fair values. SFAS 125 also requires the Company's excess servicing rights be measured at fair market value and reclassified as interest only receivables and accounted for in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". As required by SFAS 125, the Company adopted in the new requirements effective January 1, 1997. Implementation of SFAS 125 did not have any material impact on the financial statements of the Company. New Accounting Pronouncements In April 1998, Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities" was issued. This SOP provides guidance on the financial reporting of start-up costs and organization costs. It requires the costs of start-up activities and organization costs to be expensed as incurred. The SOP is effective for financial statements for fiscal year beginning after December 15, 1998. The Company does not expect that the adoption of SOP No. 98-5 will have a material impact on its financial statements. In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued and is required to be adopted in years beginning after June 15, 1999, which has been deferred to June 30, 2000. Management does not anticipate that the adoption of the new statement will have a significant effect on results of operations or the financial position of the Company. 10 NOTE 2 -- Debentures Payable to SBA At September 30, 2000 and June 30, 2000 debentures payable to the SBA consist of subordinated debentures with interest payable semiannually, as follows: Current Effective Principal Issue Date Due Date Interest Rate Amount ---------- -------- ------------- ------ September 1993 September 2003 6.12(1) $1,500,000 September 1993 September 2003 6.12 2,220,000 September 1994 September 2004 8.20 2,690,000 December 1995 December 2005 6.54 1,020,000 June 1996 June 2006 7.71 1,020,000 March 1997 March 2007 7.38(2) 430,000 ---------- $8,880,000 ========== ---------- (1) Interest rate was 3.12%from inception through September 1998 (2) The Company is also required to pay an additional annual user fee of 1% on this debenture Under the terms of the subordinated debentures, the Company may not repurchase or retire any of its capital stock or make any distributions to its stockholders other than dividends out of retained earnings (as computed in accordance with SBA regulations) without the prior written approval of the SBA. NOTE 3 -- Notes Payable to Banks At September 30, 2000 and June 30, 2000, the Company had loan agreements with three (3) banks for lines of credit aggregating $40,000,000 and $40,000,000, respectively. At September 30, 2000 and June 30, 2000, the Company had $38,500,000 and $37,800,000, respectively, outstanding under these lines. The loans, which mature through November 30, 2000, bear interest based on the Company's choice of the lower of either the reserve adjusted LIBOR rate plus 150 basis points or the bank's prime rates including certain fees which make the effective rates approximately prime minus 1 1/4%. Upon maturity, the Company anticipates extending the lines of credit for another year, as has been the practice in previous years. Pursuant to the terms of the agreements the Company is required to comply with certain terms, covenants and conditions. The Company pledged its loans receivable and other assets as collateral for the above lines of credit. At September 30, 2000 the Company is in violation of certain covenants related to this debt and is currently seeking a waiver from the bank. At June 30, 2000 the Company received a waiver from the bank regarding the same violation and anticpates receiving another waiver in the near future. The Company is in discussions with the bank to update and modify those covenants to avoid this problem in the future. NOTE 4 -- Preferred Stock Pursuant to a preferred stock repurchase agreement dated November 10, 1994, the Company repurchased all cumulative preferred stock from the SBA for $3.50 per share, or an aggregate $1,915,449. As a condition precedent to the repurchase, the Company granted the SBA a liquidating interest in a newly established restricted capital surplus account. The surplus account is equal to the amount of the net repurchase discount. The initial value of the liquidating interest was $3,557,261, which is being amortized over a 60-month period on a straight- line basis. Should the Company be in default under the repurchase agreement at any time, the liquidating interest will become fixed at the level immediately preceding the event of default and will not decline further until such time as the default is cured or waived. The liquidating interest shall expire on (i) sixty months from the date of the repurchase agreement, or (ii) if any event of default has occurred and such default has been cured or waived, such later date on which the liquidating interest is fully amortized. Should the Company voluntarily or 11 involuntarily liquidate prior to the amortization of the liquidating interest, any assets which are available, after the payment of all debts of the Company, shall be distributed first to the SBA until the fair market value of such assets is equal to the amount of the liquidating interest. Such payment, if any, would be prior in right to any payments made to the Company's stockholders. The amount restricted under this agreement at September 30, 2000 and June 30, 2000 was $-0-. During 1992, Elk authorized the issuance of 752,729 shares of a new Series B cumulative preferred stock with a 4 percent dividend and a $10 par value. All preferred shares are restricted solely for issuance to the SBA. No sales of the Series B preferred shares have occurred to date. On September 30, 1996, Congress passed a law that in effect prevents the SBA from making any further purchase of 4% preferred stock from any specialized small business investment company. In September 1998, the stockholders of Elk approved and in February 1999 the SBA approved an amendment to the Certification of Incorporation of Elk eliminating all of the authorized Series A and Series B preferred stock of Elk. This amendment to the Certificate of Incorporation was filed and became effective on May 21, 1999. NOTE 5 -- Common Stock Ameritrans has 5,000,000 authorized common shares, $0.0001 par value, of which 1,745,600 shares are issued and outstanding after the shares exchange with Elk. Ameritrans also has 1,000,000 shares of "blank check" preferred stock, none of which are issued and outstanding. NOTE 6 -- Income Taxes The provision for income taxes (benefit) for the periods ended September 30, 2000 and June 30, 2000, consists of the following: September 30, 2000 June 30, 2000 ------------------ ------------- Federal $ -0- $ 986 State and city 2,091 12,585 -------- -------- $2,091 $13,571 ======== ======== The above provision represents income taxes incurred on undistributed income for the respective years. NOTE 7 -- Commitments and Contingencies Interest Rate Swap On June 8, 1998, the Company entered into a $10,000,000 interest rate Swap transaction with a bank expiring on June 8, 2001. On October 13, 1999, the Company entered into an additional interest rate swap transaction with the same bank for $5,000,000 expiring on October 8, 2001. On January 12, 2000, the Company entered into another interest rate swap transaction for $10,000,000 with this bank expiring January 8, 2001. These Swap transactions were entered into to protect the Company from an upward movement in interest rates relating to outstanding bank debt. These Swap transactions call for a fixed rate of 5.86%, 4.95% and 6.57% (plus 150 basis points for each swap), respectively for the Company and if the floating one month LIBOR rate is below the fixed rate then the Company is obligated to pay the bank for the difference in rates. When the one-month LIBOR rate is above the fixed rate then the bank is obligated to pay the Company for the differences in rates. 12 Interest Rate Cap At March 20, 1997, the Company was a party to one $5 million notional interest rate cap. This cap, which expired on March 20, 1999, was purchased by the Company to protect it from the impact of upward movements in interest rates related to its outstanding bank debt. The cap provided interest rate protection in the event that the three-month LIBOR rate exceeded 6.75 percent. The premium paid for the purchase of this cap was amortized over its life and recorded as an adjustment to interest expense. Payments received under this cap would be credited to interest expense. Loan commitments At September 30, 2000 and June 30, 2000, the Company had commitments to make loans totaling approximately $1,113,000 and $2,070,000, at interest rates ranging from 8.25% to 18%. NOTE 8 -- Fair Value of Financial Instruments The following disclosures represent the Company's best estimate of the fair value of financial instruments, determined on a basis consistent with requirements of Statement of Financial Accounting Standards, "SFAS" No. 107, "Disclosure about Fair Value of Financial Instruments". The estimated fair values of the Company's financial instruments are derived using estimation techniques based on various subjective factors including discount rates. Such estimates may not necessarily be indicative of the net realizable or liquidation values of these instruments. Fair values typically fluctuate in response to changes in market or credit conditions. Additionally, valuations are presented as of a specific point in time and may not be relevant in relation to the future earnings potential of the Company. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company will realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Loans Receivable -- The fair value of loans is estimated at cost net of the allowance for loan losses. The Company believes that the rates of these loans approximate current market rates. Equity Securities -- The Company's equity securities as of September 30, 2000 consist of investments in corporations who own and operate Chicago Taxicab Medallions (26%), a dry cleaner (2%), Miami Taxicab Medallions (21%), a telecommunications company (47%) and a biotech research company (4%). Debentures Payable to Small Business Administration -- The fair value of debentures as of September 30, 2000 and June 30, 2000 was approximately $9,352,172 and $9,941,000, respectively, and were estimated by discounting the expected future cash flows using the current rate at which the SBA has extended similar debentures to the Company. The fair value of financial instruments that are short-term or reprice frequently and have a history of negligible credit losses is considered to approximate their carrying value. Those instruments include balances recorded in the following captions: ASSETS LIABILITIES Cash Notes payable, banks Accrued interest receivable Accrued interest payable Assets acquired in satisfaction of loans receivables from debtors on sales of assets acquired in satisfaction of loans 13 NOTE 9 -- Proposed Acquisition On May 4, 2000, the company executed an Agreement and Plan of Merger with Medallion Financial Corporation ("Medallion") and subsequently has amended certain terms and conditions, pursuant to which the Company will merge into and with a wholly-owned subsidiary of Medallion (the "Transaction"). The Transaction, which is structured to qualify as a "pooling-of-interests" for accounting purposes, is subject to the approval of the shareholders of the Company, the approval of certain lenders or receipt of a financing commitment by Medallion which is satisfactory to them, as well as the receipt of certain approvals from the U.S. Small Business Administration, the U.S. Department of Justice and the Federal Trade Commission and other customary closing conditions. Subject to the foregoing conditions, the Transaction is expected to close in the first quarter of 2001. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in this section should be used in conjunction with the consolidated Financial Statements and Notes therewith appearing in this report Form 10-Q and the Company's Annual Report on Form 10-K for the year ended June 30, 2000. General The Company is a holding company whose subsidiary Elk is licensed by the Small Business Administration (SBA) to operate as a Small Business Investment Company (SBIC) under the Small Business Investment Act of 1958, as amended. The Company has also registered as an investment company under the Investment Company Act of 1940. Elk primarily makes loans and investments to persons who qualify under SBA regulation as socially or economically disadvantaged and loans and investments to entities which are at least 50% owned by such persons. Elk also makes loans and investments to persons who qualify under SBA regulation as "non-disadvanged". Elk's primary lending activity is to originate and service loans collateralized by New York City, Boston, Chicago and Miami Taxicab Medallions. Elk also makes loans and investments in other diversified businesses. Results of Operations For the Three Months ended September 30, 2000 and 1999 Total Investment Income. The Company's investment income for the three months ended September 30, 2000 increased to $1,624,328 from $1,518,831 or (6.9%) as compared with the three month period ended September 30, 1999. This increase was mainly due to an increase in the loan portfolio. The portfolio increased from $53,719,005 as of the September 30, 1999 to $57,633,533 as of September 30, 2000, as part of the Company's strategy to maximize shareholder rate of return by use of bank debt. Operating Expenses Interest expenses for the three month period ended September 30, 2000 increased $235,315 ($962,499 vs. $727,184) over the similar period ended September 30, 1999. This increase was mainly due to increased bank borrowings for the period and was due to higher interest rates for the period ended September 30, 2000. Other operating expenses for the three months ended September 30, 2000 decreased $31,595 when compared with the three months ended September 30, 1999. The decrease was mainly due to decreased legal fees during the period. During the three months ended September 30, 2000, the Company added $192,000 to its allowance for loan losses which reflects its growing commitment to its diversified loan portfolio over the past three years. 16 Balance Sheet and Reserves Total assets increased by $752,981 as of September 30, 2000, when compared with the balance sheet as of June 30, 2000. This increase was due to management's decision to expand its portfolio in the Chicago Medallion Market, together with increases in the diversified loan portfolio. In connection therewith, the Company increased its allowance for loan losses by $192,000 during the three months ended September 30, 2000. This expansion was financed by additional bank debt of $700,000 incurred in the three month period. PART II. OTHER INFORMATION ITEM 6 -- Exhibits and Reports on Form 8-K (a) No exhibits are being filed. (b) Reports on Form 8-K. On September 25, 2000 the Company filed a current report on Form 8-K reporting under Item V (Other Events) that the Company issued a press release announcing that it had (i) amended its quarterly results to reflect a change in accounting treatment of holding company restructuring costs, (ii) that it will omit its fourth quarter dividend, and (iii) that it adjusted its merger price with Medallion Financial Corp. On September 6, 2000 the Company filed a current report on Form 8-K reporting under Item V (Other Events) that the Company executed Amendment No. 8 to the merger agreement by and between Medallion Financial Corp., AMTC Merger Corp. and Ameritrans Capital Corporation which adjusted the pricing formula of the merger transaction. 17 AMERITRANS CAPITAL CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERITRANS CAPITAL CORPORATION Date: November 15, 2000 By: /s/ Gary C. Granoff ------------------- Gary C. Granoff Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer) 18