-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ONtev3tW/ziaA/kP6d6ZDxvCNvETCtBgv5TfdCG40Cc3+SAO0YJLvhP+0r7sZWns BwhI8J7Zr8ZexnUWm3kA7Q== 0001047469-03-037441.txt : 20080626 0001047469-03-037441.hdr.sgml : 20080626 20031114131904 ACCESSION NUMBER: 0001047469-03-037441 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 DATE AS OF CHANGE: 20080620 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERITRANS CAPITAL CORP CENTRAL INDEX KEY: 0001064015 IRS NUMBER: 522102424 STATE OF INCORPORATION: DE FISCAL YEAR END: 0607 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 814-00193 FILM NUMBER: 031002523 BUSINESS ADDRESS: STREET 1: 747 THIRD AVENUE STREET 2: 4TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2123552449 MAIL ADDRESS: STREET 1: 747 THIRD AVENUE STREET 2: 4TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 10-Q 1 a2122744z10-q.txt FORM 10-Q U.S. 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, 2003 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, 2003: 2,035,600 AMERITRANS CAPITAL CORPORATION FORM 10-Q Table of Contents PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of September 30, 2003 (unaudited) and June 30, 2003.......................................................... 1 Consolidated Statements of Operations -- For the Three Months Ended September 30, 2003 and 2002 (unaudited) ............................... 3 Consolidated Statements of Cash Flows -- For the Three Months Ended September 30, 2003 and 2002 (unaudited) ............................... 4 Notes to Consolidated Financial Statements ............................. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................................. 9 Item 3. Quantitative and Qualitative Disclosure about Market Risk ................ 14 Item 4. Controls and Procedures .................................................. 15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ......................................... 15 Signatures ............................................................... 17
-ii- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2003 (UNAUDITED) AND JUNE 30, 2003 ASSETS
September 30, 2003 June 30, 2003 ------------------ -------------- Loans receivable $ 54,083,564 $ 55,306,678 Less: unrealized depreciation on loans receivable (238,500) (238,500) ------------------ -------------- Loans receivable, net 53,845,064 55,068,178 Cash and cash equivalents 302,205 498,669 Accrued interest receivable, net of unrealized depreciation of $775,800 and $691,000, respectively 1,241,868 1,321,591 Assets acquired in satisfaction of loans 1,142,189 1,142,189 Receivables from debtors on sales of assets acquired in satisfaction of loans 431,258 431,258 Equity securities 1,054,046 929,405 Property and leasehold improvements, net 475,427 173,100 Medallions Owned -- See Note 2 300,300 - Prepaid expenses and other assets 644,827 527,511 ------------------ -------------- TOTAL ASSETS $ 59,437,184 $ 60,091,901 ================== ==============
The accompanying notes are an integral part of these financial statements. -1- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2003 (UNAUDITED) AND JUNE 30, 2003 LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 2003 June 30, 2003 ------------------ -------------- LIABILITIES Debentures payable to SBA $ 10,480,000 $ 9,200,000 Notes payable, banks 32,379,902 34,130,000 Accrued expenses and other liabilities 631,983 485,710 Accrued interest payable 97,217 219,671 Dividends payable 84,375 84,375 ------------------ -------------- TOTAL LIABILITIES 43,673,477 44,119,756 ------------------ -------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock 500,000 shares authorized, none issued or outstanding - - 9 3/8% cumulative participating redeemable preferred stock $.01 par value, $12.00 face value, 500,000 shares authorized; 300,000 shares issued and outstanding 3,600,000 3,600,000 Common stock, $.0001 par value: 5,000,000 shares authorized; 2,045,600 shares issued, 2,035,600 outstanding 205 205 Additional paid-in-capital 13,869,545 13,869,545 Accumulated deficit (1,400,498) (1,197,725) Accumulated other comprehensive income (235,545) (229,880) ------------------ -------------- 15,833,707 16,042,145 Less: Treasury stock, at cost, 10,000 shares of common stock (70,000) (70,000) ------------------ -------------- TOTAL STOCKHOLDERS' EQUITY 15,763,707 15,972,145 ------------------ -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 59,437,184 $ 60,091,901 ================== ==============
The accompanying notes are an integral part of these financial statements. -2- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED)
Three Months Ended Three Months Ended September 30, 2003 September 30, 2002 ------------------ ------------------ INVESTMENT INCOME Interest on loans receivable $ 1,390,175 $ 1,551,000 Fees and other income 51,224 57,233 ------------------ ------------------ TOTAL INVESTMENT INCOME 1,441,399 1,608,233 ------------------ ------------------ OPERATING EXPENSES Interest 372,753 540,686 Salaries and employee benefits 246,547 219,913 Legal fees 62,421 61,927 Miscellaneous administrative expenses 378,361 293,104 Loss on assets acquired in satisfaction of loans, net 29,901 9,724 Directors' fee 13,250 13,250 Foreclosure expense 209,630 78,186 Write off and depreciation on interest and loans receivable 255,892 73,229 ------------------ ------------------ TOTAL OPERATING EXPENSES 1,568,755 1,290,019 ------------------ ------------------ OPERATING (LOSS) INCOME (127,356) 318,214 ------------------ ------------------ OTHER INCOME Rental income 13,836 - Gain on sale of securities 5,665 - ------------------ ------------------ TOTAL OTHER INCOME 19,501 - ------------------ ------------------ (LOSS) INCOME BEFORE INCOME TAXES (107,855) 318,214 INCOME TAXES 10,543 11,483 NET (LOSS) INCOME $ (118,398) $ 306,731 ------------------ ------------------ DIVIDENDS ON PREFERRED STOCK $ (84,375) $ (84,375) ------------------ ------------------ NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS $ (202,773) $ 222,356 ------------------ ------------------ WEIGHTED AVERAGE SHARES OUTSTANDING - - Basic 2,035,600 2,035,600 ================== ================== - - Diluted 2,035,600 2,035,600 ================== ================== NET (LOSS) INCOME PER COMMON SHARE - - Basic $ (0.10) $ 0.11 ================== ================== - - Diluted $ (0.10) $ 0.11 ================== ==================
The accompanying notes are an integral part of these financial statements -3- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (Unaudited)
September 30, 2003 September 30, 2002 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $ (118,398) $ 306,731 ------------------ ------------------ Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 25,042 17,373 Gain on sale of equity securities (5,665) - Change in operating assets and liabilities: Changes in unrealized depreciation on loans receivable and accrued interest receivable 84,800 (17,000) Accrued interest receivable (5,077) (201,108) Prepaid expenses and other assets (130,055) (114,262) Accrued expenses and other liabilities 146,272 263,247 Accrued interest payable (122,454) (121,018) ------------------ ------------------ TOTAL ADJUSTMENTS (7,137) (172,768) ------------------ ------------------ NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (125,535) 133,963 ------------------ ------------------ CASH FLOWS FROM INVESTING ACTIVITIES Loans receivable 1,223,114 (1,189,298) Assets acquired in satisfaction of loans - 4,500 Sales of equity securities 25,959 - Purchases of equity securities (150,600) (173,000) Purchases of Medallions (300,300) - Capital expenditures (314,629) (10,000) ------------------ ------------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 483,544 (1,367,798) ------------------ ------------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable, banks - 5,270,000 Repayments of notes payable, banks (1,750,098) (3,400,000) Proceeds from debentures payable to SBA 5,000,000 2,050,000 Repayment of debentures payable to SBA (3,720,000) (2,690,000) Dividends paid (84,375) (68,438) ------------------ ------------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (554,473) 1,161,562 ------------------ ------------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (196,464) (72,273) ------------------ ------------------ CASH AND CASH EQUIVALENTS - Beginning 498,669 774,062 CASH AND CASH EQUIVALENTS - Ending $ 302,205 $ 701,789 ================== ==================
The accompanying notes are an integral part of these financial statements. -4- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FINANCIAL STATEMENTS The consolidated balance sheets of Ameritrans Capital Corporation ("Ameritrans" or the "Company") as of September 30, 2003, and the related statements of operations, and cash flows for the three months ended September 30, 2003 and September 30, 2002 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 three months ended September 30, 2003 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, 2003 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 of the Company 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, primarily makes loans to taxi owners to finance the acquisition and operation of taxi medallions and related assets, and to other small businesses in the New York City, Chicago, Miami, and Boston markets. From inception through April 2002, Ameritrans' only activities have been the operations of Elk. In May 2002, Ameritrans made its first loans to businesses using the proceeds raised from a public offering, which was completed in April 2002. -5- BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of Ameritrans, Elk, EAF Holding Corporation ("EAF"), EAF Enterprises LLC and Medallion Auto Management LLC and are collectively referred to as the "Company". EAF, EAF Enterprises LLC and Medallion Auto Management LLC are all wholly owned subsidiaries of Elk. 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. EAF Enterprises LLC was formed in June 2003 and began operations in July 2003. The purpose of EAF Enterprises LLC is to own, lease and resell medallions acquired in satisfaction of foreclosures by Elk. Medallion Auto Management LLC was formed in June 2003 and began operations in July 2003. The purpose of Medallion Auto Management LLC is to own, lease and resell automobiles in conjunction with the medallions owned by EAF Enterprises LLC. 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. RECLASSIFICATIONS Certain amounts in the prior financial statements have been reclassified for comparative purposes to conform with the presentation in the financial statements for the three months ended September 30, 2003. These reclassifications have no effect on previously reported net income. 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 2004, the Company intends to make the required distributions to its stockholders in accordance with applicable tax rules. -6- NET INCOME (LOSS) PER SHARE Net income (loss) per share has been computed in accordance with Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128"), which 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 for the period. Common stock equivalents have been excluded from the weighted-average shares for 2003 and 2002 as inclusion is anti-dilutive. At September 30, 2003 the Company had 133,141 options outstanding. LOAN VALUATIONS The Company's loans are recorded at fair value. Loans are valued at cost less unrealized depreciation. Since no ready market exists for these loans, the fair value is determined in good faith by the Board of Directors. In determining the fair value, the Board of Directors considers factors such as the financial condition of the borrower, the adequacy of the collateral, individual credit risks, historical loss experience and the relationships between current and projected market rates and portfolio rates of interest and maturities. To date, the fair value of the loans has been determined to approximate cost less unrealized depreciation. No loans have been recorded above cost. 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 fair value of financial instruments. NOTE 2 - ACQUISITION OF MEDALLIONS AND OTHER PROPERTY During the quarter ended September 30, 2003, the Company purchased five Chicago medallions through one of its subsidiaries, EAF Enterprises LLC for $300,300. Another subsidiary, Medallion Auto Management LLC, purchased vehicles for $163,233 to be leased in conjunction with the medallions owned by EAF Enterprises LLC to individual taxi operators. Other capital expenditures include the purchases of furniture and equipment and expenses for leasehold improvements related to the additional office and storage space acquired in July 2003. -7- NOTE 3 -- DEBENTURES PAYABLE TO SBA At September 30, 2003 and June 30, 2003 debentures payable to the SBA consist of subordinated debentures with interest payable semiannually, as follows:
Current Effective 9/30/03 6/30/03 Interest Principal Principal Issue Date Due Date Rate Amount Amount ---------- -------- --------- --------- --------- September 1993 September 2003 6.12(3) $ - $ 2,220,000 September 1993 September 2003 6.12(3) $ - $ 1,500,000 March 1997 March 2007 7.38(1) $ 430,000 $ 430,000 July 2002 September 2012 4.67(2) $ 2,050,000 $ 2,050,000 December 2002 March 2013 4.63(2) $ 3,000,000 $ 3,000,000 September 2003 March 2014 1.68(2) $ 5,000,000 $ - ------------- ------------ $ 10,480,000 $ 9,200,000 ============= ============
(1) Elk is also required to pay an additional annual user fee of 1% on this debenture. (2) Elk is also required to pay an additional annual user fee of 0.866% on debentures. (3) The debentures matured and were paid in full during September 2003. Under the terms of the subordinated debentures, Elk 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. SBA COMMITMENT During January 2002 Elk and the SBA entered into an agreement whereby the SBA committed to reserve debentures in the amount of $12,000,000 to be issued by Elk on or prior to September 30, 2006. A 2.5% leverage fee will be deducted pro rata as the commitment proceeds are drawn down. A $120,000 non-refundable fee was paid by Elk at the time of obtaining the $12,000,000 commitment. During September 2003, a new debenture payable to SBA was drawn from the reserve pool of $12,000,000 in the amount of $5,000,000 with an interim interest rate of 1.682%. The long term fixed rate for the ten year term will be determined on the pooling date of March 24, 2004. In addition to the fixed rate, there is an additional annual SBA user fee of 0.866% per annum that will also be charged making the initial rate 2.548% before applicable amortization of points and fees. -8- NOTE 4 -- NOTES PAYABLE TO BANKS At September 30, 2003 and June 30, 2003 Elk had loan agreements with three (3) banks for lines of credit aggregating $40,000,000. At September 30, 2003 and June 30, 2003, Elk had $32,379,902 and $34,130,000 respectively, outstanding under these lines. The loans, which mature through November 30, 2003, bear interest at the lower of either the reserve adjusted LIBOR rate plus 1.5% or the banks' prime rates minus 0.5%. Upon maturity, Elk anticipates extending the lines of credit for another year, as has been the practice in previous years. Pursuant to the terms of the agreements Elk is required to comply with certain terms, covenants and conditions. At September 30, 2003 and June 30, 2003, Elk is in compliance with all terms, covenants and conditions. Elk pledged its loans receivable and other assets as collateral for the above lines of credit. NOTE 5 -- COMMITMENTS AND CONTINGENCIES INTEREST RATE SWAPS On June 11, 2001 Elk entered into an interest rate Swap transaction for $15,000,000 with a bank, which expired June 11, 2003. On February 11, 2003, Elk entered into another interest rate Swap transaction for $5,000,000 with the same bank expiring February 11, 2005. These Swap transactions were entered into to protect Elk from an upward movement in interest rates relating to outstanding bank debt. These Swap transactions call for a fixed rate of 4.95% and 3.56% respectively for Elk and if the floating one month LIBOR rate is below the fixed rate then Elk 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 Elk for the differences in rates. NOTE 6 -- OTHER MATTERS QUARTERLY DIVIDEND The Company's Board of Directors declared a dividend of $0.28125 per share or $84,375 on September 25, 2003 on the Company's 9 3/8% Cumulative Participating Preferred Stock (the "Participating Preferred Stock") for the period July 1, 2003 through September 30, 2003, which was paid on October 15, 2003 to all holders of the Participating Preferred Stock of record as of October 7, 2003. 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, 2003. -9- CRITICAL ACCOUNTING POLICIES The preparation of the Company's consolidated financial statements requires management to make estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Significant estimates made by the Company include valuation of loans, evaluation of the recoverability of various receivables and the assessment of litigation and other contingencies. The Company's ability to collect receivables and recover the value of its loans depends on a number of factors, including financial conditions and its ability to enforce provisions of its contracts in the event of disputes, through litigation if necessary. Such estimates and assumptions are inherently uncertain and may require complex and subjective judgments. Although the Company believes that estimates and assumptions used in determining the recorded amounts of net assets and liabilities at September 30, 2003, are reasonable, actual results could differ materially from the estimated amounts recorded in the Company's financial statements. Our critical accounting policies are those applicable to the valuation of loans receivable and various investments discussed below. VALUATION OF LOANS AND DEBT SECURITIES. For loans and debt securities, fair value generally approximates cost less unrealized depreciation and no loans have been recorded above cost. Overall financial condition of the borrower, the adequacy of the collateral, individual credit risks, historical loss experience and other factors lead to a determination of the fair value at a different amount. EQUITY SECURITIES. The fair value of publicly traded corporate equity securities is based on quoted market prices. Privately held corporate equity securities are recorded at the lower of cost or fair value. For these non-quoted investments, the Company makes a careful review of the assumptions underlying the financial performance of the privately held companies in which the investments are maintained. If and when a determination is made that a decline in fair value below the cost basis is other than temporary, the related investment is written down to its estimated fair value. 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 unrealized depreciation on loans receivable. Subsequent reductions in estimated net realizable value are recorded as losses on assets acquired in satisfaction of loans. GENERAL Ameritrans acquired Elk on December 16, 1999 in a share for share exchange. 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. Both Ameritrans and Elk are registered as an investment company under the Investment Company Act of 1940. -10- 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. At September 30, 2003, 76% of Elk's portfolio was invested in loans secured by taxi medallions and 24% of Elk's loans were to other diversified businesses. From inception through April 2002, Ameritrans' only activities have been the operations of Elk. In May 2002, Ameritrans made its first loans to businesses using the proceeds raised from a public offering, which was completed in April 2002. Elk set up two additional wholly owned subsidiaries, EAF Enterprises LLC and Medallion Auto Management LLC, in June 2003. Starting July 2003, EAF Enterprises LLC took title to 5 of Elk's foreclosure medallions and leased them to individual operators and Medallion Auto Management LLC purchased vehicles to lease with the medallions. The taxi operators have the option to purchase both the medallions and vehicles. RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2003 AND 2002 TOTAL INVESTMENT INCOME The Company's investment income for the period ended September 30, 2003 decreased $166,834 to $1,441,399 as compared with the prior period ended September 30, 2002. This decrease was mainly due to the impact of lower average interest rates charged on new and modified loans, combined with a decrease in other fees of $6,009. OPERATING EXPENSES Total operating expenses increased $278,736 from $1,290,019 to $1,568,755. Lower interest costs were more than offset by increases in salary, foreclosure expenses, depreciation in the value of loans and other administrative expenses. Interest expense for the period ended September 30, 2003 decreased $167,933 when compared to the period ended September 30, 2002. This reflects the lower interest charged on outstanding bank borrowings and certain SBA debentures refinanced at lower rates during the current quarter. Salary and employee benefits increased $26,634 when compared with the similar quarter in the prior year. This increase reflects the increases that were put into effect from the officers' employment agreements. Foreclosure expenses increased $131,444 and depreciation in the value of loans increased $182,663 when compared with the similar quarter in the prior year. Both of these increases relate primarily to the foreclosures of the Chicago medallion loans. Other administrative expenses increased $85,257 when compared with the similar quarter in the prior year. This increase relates primarily to increases in rent, professional fees and insurance. -11- NET INCOME (LOSS) Net income (loss) decreased from $306,731 in the period ended September 30, 2002 to a net loss of $118,398 in the period ended September 30, 2003. The decrease in the net income for the period was attributable primarily to the write down of the Chicago loan portfolio and related foreclosure expenses, increases in salaries and certain other administrative costs, which were only partially offset by favorable interest rates obtained from debt refinancing. Dividends of Participating Preferred Stock for the quarter amounted to $84,375 in each of the quarters ended September 30, 2003 and 2002. BALANCE SHEET AND RESERVES Total assets decreased by $654,717 as of September 30, 2003 when compared to total assets as of June 30, 2003. A decrease in loans receivable was partially offset by an increase in intangibles, and property and improvements. In September 2003 a new debenture payable to the SBA for $5,000,000 was drawn from the commitment pool of $12,000,000. In the same month, Elk also paid off two SBA debentures in the amount of $2,220,000 and $1,500,000 that matured in September 2003. In addition, Elk also paid down $1,750,098 on its bank borrowings. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations through private and public placements of its securities, bank financing, the issuance to the SBA of its subordinated debentures and internally generated funds. On April 24, 2002, Ameritrans completed a public offering of 300,000 units, consisting of one share of Common Stock, one share of 9 3/8% cumulative participating redeemable Preferred Stock, face value $12.00, and one redeemable Warrant exercisable into one share of Common Stock. The gross proceeds from the sale were $5,700,000 less offering expenses of $1,704,399. A portion of the proceeds was used temporarily to reduce banks and SBA indebtedness. Ameritrans also used part of the proceeds to start its own loan portfolio. At September 30, 2003, 76% of Elk's indebtedness was represented by indebtedness to its banks and 24% by the debentures issued to the SBA with fixed rates of interest plus user fees which results in rates ranging from 5.50% to 8.38%. Elk currently may borrow up to $40,000,000 under its existing lines of credit, subject to the limitations imposed by its borrowing base agreement with its banks and the SBA, the statutory and regulatory limitations imposed by the SBA and the availability of funds. In addition, during January 2002, the Company and the SBA entered into an agreement whereby the SBA committed to reserve debentures in the amount of $12,000,000 to be issued to the Company on or -12- prior to September 30, 2006. In July and December 2002, new debentures payable to the SBA were drawn from the reserved pool of $12,000,000 in the amount of $2,050,000 and $3,000,000, respectively. The interim interest rates assigned were 2.351 % and 1.927%, respectively. The fixed rates of 4.67% and 4.628% were determined on the pooling dates of September 25, 2002 and March 26, 2003, respectively. On September 15, 2003, another new debenture payable to the SBA was drawn in the amount of $5,000,000 with an interim interest rate of 1.682%. The long term fixed rate will be determined on the pooling date of March 24, 2004. In addition to the fixed rates, there is an additional annual SBA user fee of 0.87% per annum that will also be charged making the rate 5.54%, 5.49% and 2.55% before applicable amortization of points and fees. Our sources of liquidity are credit lines with banks, long-term SBA debentures that are issued to or guaranteed by the SBA, loan amortization and prepayment. As a RIC, we distribute at least 90% of our investment company taxable income. Consequently, we primarily rely upon external sources of funds to finance growth. Loan amortization and prepayments also provide a source of funding for Elk. Prepayments on loans are influenced significantly by general interest rates, economic conditions and competition. During the quarter ended September 30, 2003, the Company purchased five Chicago medallions through one of its subsidiaries, EAF Enterprises LLC for $300,300. Another subsidiary, Medallion Auto Management LLC, purchased vehicles for $163,233 to be leased in conjunction with the medallions owned by EAF Enterprises LLC to individual taxi operators. Other capital expenditures include the purchases of furniture and equipment and expenses for leasehold improvements related to the additional office and storage space acquired in July 2003. In addition, the Company invested $100,000 to obtain a 50% stock ownership in a company during August 2003. Like Elk, Ameritrans will distribute at least 90% of its investment company taxable income and, accordingly, we will continue to rely upon external sources of funds to finance growth. In order to provide the funds necessary for our expansion strategy, we expect to raise additional capital and to incur, from time to time, additional bank indebtedness and (if deemed necessary by management) to obtain SBA loans. There can be no assurances that such additional financing will be available on acceptable terms. NEW ACCOUNTING STANDARDS In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148 (SFAS 148), "Accounting for Stock-Based Compensation--Transition and Disclosure." SFAS 148 amends SFAS 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for an entity that voluntarily -13- changes to the fair value based method of accounting for stock-based employee compensation. The adoption of this pronouncement did not have a material effect on the consolidated financial statements as the Company continues to apply the intrinsic value method in accordance with APB No. 25. In January 2003 the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." This standard will require all variable interest entities ("VIEs") to be consolidated by the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interests in the VIEs. These requirements are effective for financial statements issued after January 31, 2003, and are not expected to have a material impact on the Company's consolidated financial position or results of operations. In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 150 ("SFAS 150"), "Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity." This Statement establishes standards for users to follow in classifying and measuring certain financial instruments with characteristics of both liabilities and equity. This Statement is effective for the first interim period after June 15, 2003. The adoption of this Standard did not have a significant impact on the Company's consolidated results of operations and financial position. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's business activities are subject to risk. The Company considers the principal types of risk to be fluctuations in interest rates and portfolio valuations. The Company considers the management of risk essential to conducting its businesses. Accordingly, the Company's risk management systems and procedures are designed to identify and analyze the Company's risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. The Company values its portfolio at fair value as determined in good faith by the Company's Board of Directors in accordance with the Company's valuation policy. Unlike certain lending institutions, the Company is not permitted to establish reserves for loan losses. Instead, the Company must value each individual investment and portfolio loan on a quarterly basis. The Company records unrealized depreciation on investments and loans when it believes that an asset has been impaired and full collection is unlikely. Without a readily ascertainable market value, the estimated value of the Company's portfolio of investments and loans may differ significantly from the values that would be placed on the portfolio if there existed a ready market for the investments. The Company adjusts the valuation of the portfolio quarterly to reflect the Board of Directors' estimate of the current fair value of each investment in the portfolio. Any changes in estimated fair value are recorded in the Company's statement of operations as net unrealized appreciation (depreciation) on investments. -14- In addition, the illiquidity of our loan portfolio and investments may adversely affect our ability to dispose of loans at times when it may be advantageous for us to liquidate such portfolio or investments. Also, if we were required to liquidate some or all of the investments in the portfolio, the proceeds of such liquidation might be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we loan and invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. As interest rates rise, our interest costs increase, decreasing the net interest rate spread we receive and thereby adversely affect our profitability. Although we intend to continue to manage our interest rate risk through asset and liability management, including the use of interest rate swaps, general rises in interest rates will tend to reduce our interest rate spread in the short term. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Based on an evaluation of our disclosure controls and procedures conducted within 90 days of the date of filing this report on Form 10-Q, our Chief Executive Officer (also acting Chief Financial Officer) has concluded that our disclosure controls and procedures (as defined in Rules 13a - 14(c) and 15d - 14(c) promulgated under the Securities Exchange Act of 1934) are effective. (b) Changes in Internal Controls There have been no significant changes in internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation. PART II. OTHER INFORMATION ITEM 6-- EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 31.1 Certification of the Chief Executive and Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive and Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K On October 10, 2003 the Company filed a report on Form 8-K reporting under Item 12 (Results of Operations and Financial Condition) that the Company issued a press release announcing its year end June 30, 2003 results. -15- On July 1, 2003 the Company filed a current report on Form 8-K reporting under Item 4 (Changes in Registrant's Certifying Accountants) that effective as of June 26, 2003 the Company dismissed Marcum & Kliegman, LLP as the principal accountants to audit the Company's financial statements; and that the Company, effective as of June 30, 2003, engaged the accounting firm of Rosen Seymour Shapss Martin & Company LLP as the Company's new independent accountants to audit the Company's financial statements for the year ending June 30, 2003. -16- 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 14, 2003 BY: /s/ GARY C. GRANOFF -------------------------- GARY C. GRANOFF CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER AND CHIEF ACCOUNTING OFFICER) -17- EX-31.1 3 a2122744zex-31_1.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 DISCLOSURE IN THE REGISTRANT'S QUARTERLY REPORT I, Gary C. Granoff, President, Chief Executive Officer, and Chief Financial Officer of Ameritrans Capital Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Ameritrans Capital Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation, and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 14, 2003 /s/ GARY C. GRANOFF -------------------------------------- Gary C. Granoff President, Chief Executive Officer and Chief Financial Officer EX-32.1 4 a2122744zex-32_1.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Ameritrans Capital Corporation (the "Company") on Form 10-Q for the quarter ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary C. Granoff, President, Chief Executive Officer, and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition, and results of operations of the Company. /s/ GARY C. GRANOFF - ---------------------------------------------- Gary C. Granoff President, Chief Executive Officer, and Chief Financial Officer November 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----