10-Q 1 d25708_10q.txt FORM 10Q 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 March 31, 2001 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 May 9, 2001: 1,745,600 AMERITRANS CAPITAL CORPORATION FORM 10-Q Table of Contents PART I. FINANCIAL INFORMATION Item 1. Financial Statements .................................................1 Consolidated Balance Sheets as of March 31, 2001 (unaudited) and June 30, 2000.......................................1 Consolidated Statements of Operations --For the Three Months and Nine Months Ended March 31, 2001 and 2000 (unaudited) ..........3 Consolidated Statements of Cash Flows -- For the Nine Months Ended March 31, 2001 and 2000 (unaudited) ...................4 Notes to Consolidated Financial Statements ...........................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............................12 PART II. OTHER INFORMATION Item 5. Other Information ....................................................13 Item 6. Exhibits and Reports on Form 8-K .....................................13 Signatures ........................................................14 -i- PART I FINANCIAL INFORMATION AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2001 (Unaudited) and June 30, 2000 ASSETS
March 31, 2001 June 30, 2000 Loans receivable ............................................ $ 56,435,260 $ 56,806,579 Less: allowance for loan losses ............................. (572,000) (380,000) ------------ ------------ 55,863,260 56,426,579 Cash and cash equivalents ................................... 603,427 376,507 Accrued interest receivable ................................. 1,015,553 928,765 Assets acquired in satisfaction of loans .................... 944,503 609,106 Receivables from debtors on sales of assets acquired in satisfaction of loans ................................ 426,553 743,954 Equity securities ........................................... 416,766 631,974 Furniture, fixtures and leasehold improvements, net ......... 94,249 110,019 Prepaid expenses and other assets ........................... 274,594 467,720 ------------ ------------ TOTAL ASSETS ............................ $ 59,638,905 $ 60,294,624 ============ ============
The accompanying notes are an integral part of these financial statements. -1- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2001 (Unaudited) and June 30, 2000 LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 2001 June 30, 2000 -------------- ------------- LIABILITIES Debentures payable to SBA ............................ $ 8,880,000 $ 8,880,000 Notes payable, banks ................................. 37,250,000 37,800,000 Accrued expenses and other liabilities ............... 409,781 365,328 Accrued interest payable ............................. 246,495 365,270 Dividends payable .................................... 196,380 -- ------------ ------------ TOTAL LIABILITIES ............................... 46,982,656 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 .................................. (834,322) (725,057) Accumulated other comprehensive income ............... 18,922 137,434 ------------ ------------ ------------ ------------ TOTAL STOCKHOLDERS' EQUITY ...................... 12,656,249 12,884,026 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................. $ 59,638,905 $ 60,294,624 ============ ============
The accompanying notes are an integral part of these financial statements. -2- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months and Nine Months Ended March 31, 2001 and 2000
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended March 31, 2001 March 31, 2000 March 31, 2001 March 31, 2000 INVESTMENT INCOME Interest on loans receivable $1,655,672 $ 1,612,746 $ 4,696,174 $ 4,519,669 Fees and other income 73,896 118,675 255,932 409,991 Gain on sales of equity securities 109,507 90,748 121,637 166,917 --------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 1,839,075 1,822,169 5,073,743 5,096,577 --------------------------------------------------------------------------- OPERATING EXPENSES Interest 904,712 887,450 2,649,482 2,433,497 Salaries and employee benefits 199,409 202,743 509,013 483,871 Legal fees 58,985 94,495 139,022 332,044 Miscellaneous administrative expenses 213,373 169,809 654,628 607,726 Loss on assets acquired in satisfaction of loans, net 19,474 30,240 75,242 32,175 Directors' fee 10,500 11,625 10,000 31,875 Bad debt expense -- 89,080 194,298 170,130 Recapitalization Costs -- 77,104 -- 423,045 Writeoff of Merger Costs 413,187 -- 413,187 -- --------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 1,819,640 1,562,546 4,644,872 4,514,363 --------------------------------------------------------------------------- OPERATING INCOME 19,435 259,623 428,871 582,214 --------------------------------------------------------------------------- NET INCOME BEFORE INCOME TAXES 19,435 259,623 428,871 582,214 INCOME TAXES 2,652 6,712 10,092 18,695 --------------------------------------------------------------------------- NET INCOME $ 16,783 $ 252,911 $ 418,779 $ 563,519 OTHER COMPREHENSIVE (LOSS) INCOME Net reclassification adjustment for gains included in net income and unrealized gain on equity security (118,512) (149,999) (118,512) (149,999) --------------------------------------------------------------------------- COMPREHENSIVE (LOSS) INCOME $ (101,729) $ 102,912 $ 300,267 $ 413,520 =========================================================================== WEIGHTED AVERAGE SHARES OUTSTANDING Basic 1,745,600 1,745,600 1,745,600 1,745,600 Diluted 1,745,600 1,748,360 1,745,600 1,748,360 --------------------------------------------------------------------------- NET INCOME PER COMMON SHARE Basic $ 0.0096 $ 0.1449 $ 0.2399 $ 0.3228 Diluted $ 0.0096 $ 0.1447 $ 0.2399 $ 0.3223 ===========================================================================
The accompanying notes are an integral part of these financial statements -3- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Months Ended March 31, 2001 and 2000
March 31, 2001 March 31, 2000 ------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 418,779 $ 563,519 ------------------------------------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 49,272 37,485 Gain on sale of equity securities (121,637) (166,917) (Increase)decrease in accrued interest receivable (86,788) (87,430) (Increase) decrease in prepaid expenses and other assets 174,785 16,837 Increase(decrease) in accrued expenses and other liabilities 44,453 219,689 Increase (decrease) in accrued interest payable (118,775) 48,271 ------------------------------------ TOTAL ADJUSTMENTS (58,690) 67,935 ------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 360,089 631,454 ------------------------------------ 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 545,323 (7,823,688) Sales of equity securities 218,333 198,254 Acquisition of furniture, fixtures and leasehold improvements (15,161) (48,362) ------------------------------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 748,495 (7,673,796) ------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES (Repayment) Proceeds from notes payable, banks, net (550,000) 7,600,000 Dividends paid (331,664) (960,080) ------------------------------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ (881,664) $ 6,639,920 ------------------------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 226,920 $ (402,422) CASH AND CASH EQUIVALENTS - Beginning 376,507 542,290 ------------------------------------ CASH AND CASH EQUIVALENTS - Ending $ 603,427 $ 139,868 ====================================
The accompanying notes are an integral part of these financial statements. -4- 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" or "Ameritrans") as of March 31, 2001, the related statements of operations, and cash flows for the nine months ended March 31, 2001 and March 31, 2000 included in Item 1 have been prepared by the Company, without audit pursuant to the rules and regulations of the Securities and Exchange Commission (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 nine months ended March 31, 2001 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 Company'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, a Delaware corporation, acquired all of the outstanding shares of Elk Associates 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. -5- 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 has 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 March 31, 2001 and June 30, 2000 approximately 78% and 78%, respectively, 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. -6- 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 principle 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 March 31, 2001 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 2001, 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 March 31, 2001 and June 30, 2000 the Company has 133,336 options outstanding which resulted in common stock equivalents of nil 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 March 31, 2001 and June 30, 2000, loan costs amounted to $86,535 and $104,877, respectively, net of accumulated amortization of $157,446 and $139,104, respectively. Amortization expense for the periods ended March 31, 2001 and June 30, 2000 was $18,341 and $24,455, respectively. -7- 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 statement 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. 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. -8- 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. NOTE 2 -- Debentures Payable to SBA At March 31, 2001 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 $1,500,000 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(1) 430,000 ---------- $8,880,000 ========== ---------- (1) 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 March 31, 2001 and June 30, 2000, the Company had loan agreements with three (3) banks for lines of credit aggregating $40,000,000. At March 31, 2001 and June 30, 2000, the Company had $37,250,000 and $37,800,000, respectively, outstanding under these lines. The loans, which mature through May 8, 2001, 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 range from 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 and were not required to maintain compensating balances. 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 expired sixty months from the date of the repurchase agreement. -9- NOTE 5 -- Common Stock Ameritrans has 5,000,000 authorized common shares, $.0001 par value, of which 1,745,600 shares are issued and outstanding. Ameritrans also has 1,000,000 shares of "blank check" preferred stock, none of which are issued and outstanding. On April 30, 2001 the Company declared a cash dividend of $0.1125 per common share, for a total of $196,380, which will be paid to stockholders of record on May 25, 2001 with a payment date of May 31, 2001. Of the $196,380 dividend, which is being paid out of the Company's capital surplus, $87,155 is attributable to the Company's current earnings. NOTE 6 -- Income Taxes The provision for income taxes (benefit) for the periods ended March 31, 2001 and June 30, 2000, consists of the following: March 31, 2001 June 30, 2000 -------------------------------- Federal $ 1,161 $ 986 State and City 8,931 12,585 ------------------------------- $10,092 $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. This Swap transaction was entered into to protect the Company from an upward movement in interest rates relating to outstanding bank debt. On October 13, 1998, the Company entered into an additional interest rate Swap transaction with the same bank for $5,000,000 expiring on October 8, 2001. These Swap transactions were entered into to protect the Company from an upward movement in interest rates relating to outstanding bank debt (see Note 3 for terms and effective interest rates). These Swap transactions call for a fixed rate of 5.86% and 4.95%, respectively, plus 150 basis points or effective rate of 7.36% and 6.45%, respectively, for the Company 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. On January 18, 2000, the Company entered into an additional interest rate swap transaction for $10,000,000, which expired January 2001 and which was not renewed at that time. This swap transaction called for a fixed rate of 6.57% plus 150 basis points or an effective rate of 8.07%. Loan commitments At March 31, 2001 and June 30, 2000, the Company had commitments to make loans totaling approximately $1,503,830 and $2,070,000, at interest rate ranging from 8.25% to 15%. 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 March 31, 2001 consist of investments in corporations who own and operate Chicago Taxicab Medallions 11%, a dry cleaner 4%, contact lens distributor 13%, a Telecommunications Company 66%, and a biotech research company 6%. Debentures Payable to Small Business Administration -- The fair value of debentures as of March 31, 2001 and June 30, 2000 was approximately $8,930,000 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: -10- 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 NOTE 9 -- Medallion Merger On January 31, 2001, the Company terminated an Agreement and Plan of Merger with Medallion Financial Corporation ("Medallion"). This termination resulted in a charge of $413,187 in the period ended, March 31, 2001. -11- 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 on Form 10Q and the Company's Annual Report for the year ended June 30, 2000. General The Company 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. The Company 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. The Company also makes loans and investments to persons who qualify under SBA regulation as "non-disadvantaged". The Company's primary lending activity is to originate and service loans collateralized by New York City, Boston, Chicago and Miami Taxicab Medallions. The Company also makes loans and investments in other diversified businesses. Results of Operations For the Nine Months ended March 31, 2001 and 2000. Total investment income The Company's investment income for the nine months ended March 31, 2001 decreased to $5,073,743 from $5,096,577 when compared with the nine months period ended March 31, 2000. Interest earned on loans receivable increased by $175,505 offset by decreases on other fees $154,059 and reduced gains on sales of equity securities $45,280 when compared with the prior period. These changes were mainly due to management's conservative lending policy during the merger discussions with Medallion. Operating Expenses Interest expense for the nine month period ended March 31, 2001 increased $215,985 ($2,649,482 from $2,433,497) over the similar period ended March 31, 2000. This increase was mainly due to increased average outstanding bank borrowings for the period, and due to higher average interest rates over the period ended March 31, 2001. -12- Other operating expenses decreased $85,476 when compared with the similar period ended March 31, 2000. This decrease was mainly due to a decrease in legal costs relating to the Company's investment in the Chicago Medallion Market. In addition, salaries and benefits increased $25,142 and bad debts increased $24,168, respectively, when compared with the prior period. During the nine months ended March 31, 2001, the Company wrote off $413,187 in merger costs. During the nine months ended March 31, 2000 the Company wrote off $423,045 of recapitalization costs. Results of Operations For the Three Months ended March 31, 2001 and 2000 Total investment income The Company's investment income for the three months ended March 31, 2001 increased to $1,839,075 from $1,822,169 when compared with the three month period ending March 31, 2000. This leveling was due to pending negotiations in connection with the proposed merger with Medallion Financial Corp. In addition, there was a gain on the sale of equity securities which amounted to $109,507 compared with $90,748 in the similar quarter of the prior year. Operating Expenses Interest expense for the three month period ended March 31, 2001 increased $17,262 ($904,712 from $887,450) over the similar period ended March 31, 2000. This increase was mainly due to higher average interest rates for the period ended March 31, 2001. Other operating expenses decreased $96,521 when compared with the similar period ended March 31, 2000. This decrease was due to bad debts written off in the similar quarter of the prior year. During the three month period ended March 31, 2001 the Company wrote off merger costs in the amount of $413,187. During the similar quarter ended March 31, 2000, $77,104 of recapitalization costs were written off. Balance Sheet and Reserves Total assets decreased $655,719 as of March 31, 2001 when compared with the balance sheet as of June 30, 2000. This decrease is due mainly to writedown of merger costs associated with the potential merger writeoff of $413,187. Management's decision during the negotiation period was to employ a conservative lending policy until the merger was completed. The Company utilized its cash flow during the period to pay down its short term debt $550,000. PART II. OTHER INFORMATION Item 5. Other Information On January 31, 2001 the proposed Agreement and Plan of Merger (the "Merger Agreement") between the Company and Medallion Financial Corp. was terminated by the Company because the parties were unable to reach mutually agreeable terms for an extension of the closing date. Item 6. Exhibits and Reprots on Form 8-K (b) Reports on Form 8-K On February 6, 2001 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 the proposed Merger Agreement by and between the Company and Medallion Financial Corp. was terminated. -13- 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: May 15, 2001 By: /s/ Gary C. Granoff ------------------- Gary C. Granoff Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer) -14-