-----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, QKEX8kndwORfc63Yflq1vQH6G7RwD+FcLujABlMO2aZc+SrXlSQGcjxypyvxNUTs vVoEgf/lGyQmVvrM4giTuQ== 0001064015-04-000005.txt : 20080626 0001064015-04-000005.hdr.sgml : 20080626 20040514142101 ACCESSION NUMBER: 0001064015-04-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040514 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: 04806486 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 a10q.txt 10Q 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 March 31, 2004 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 14, 2004: 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 March 31, 2004 (unaudited) and June 30, 2003 1 - 2 Consolidated Statements of Operations -- For the Three Months and Nine Months Ended March 31, 2004 (unaudited) and 2003 (unaudited) 3 Consolidated Statements of Cash Flows -- For the Nine Months Ended March 31, 2004 (unaudited) and 2003 (unaudited) 4 - 5 Notes to Consolidated Financial Statements 6 - 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 19 Item 3. Quantitative and Qualitative Disclosure about Market Risk 19 - 20 Item 4. Controls and Procedures 20 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 20 - 21 Signatures 22
-ii- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 31, 2004 (unaudited) June 30, 2003 ------------------------------- Loans receivable $54,502,805 $55,306,678 Less: unrealized depreciation on loans receivable (388,500) (238,500) ---------------- ------------- Loans receivable, net (Note 4) 54,114,305 55,068,178 Cash and cash equivalents 434,536 498,669 Accrued interest receivable, net of unrealized depreciation of $82,100 and $691,000, respectively 1,133,589 1,321,591 Assets acquired in satisfaction of loans 853,689 1,142,189 Receivables from debtors on sales of assets acquired in satisfaction of loans 424,258 431,258 Equity investments 1,011,507 929,405 Property and leasehold improvements, net 432,715 173,100 Medallions (Note 2) 1,418,901 - Prepaid expenses and other assets 646,508 527,511 ---------------- ------------- TOTAL ASSETS $60,470,008 $60,091,901 ================ ============= 1 AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 2004 June 30, 2003 (unaudited) --------------------------------- LIABILITIES Debentures payable to SBA (Note 3) $12,000,000 $9,200,000 Notes payable, banks (Note 4) 32,408,652 34,130,000 Accrued expenses and other liabilities 573,181 485,710 Accrued interest payable 63,948 219,671 Accrued dividend payable 84,375 84,375 ------------------- ------------- TOTAL LIABILITIES 45,130,156 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 (1,814,687) (1,197,725) Accumulated other comprehensive income (245,211) (229,880) ------------------- ------------- 15,409,852 16,042,145 Less: Treasury stock, at cost, 10,000 shares of Common stock (70,000) (70,000) ------------------- ------------- TOTAL STOCKHOLDERS' EQUITY 15,339,852 15,972,145 ------------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $60,470,008 $60,091,901 =================== =============
The accompanying notes are an integral part of these financial statements. -2- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended March 31, 2004 March 31, 2003 March 31, 2004 March 31, 2003 -------------------------------------------------------------------------- INVESTMENT INCOME Interest on loans receivable $1,249,444 $1,499,081 $3,970,646 $4,593,638 Fees and other income 130,030 48,604 238,476 148,173 Leasing income 48,837 - 86,385 - ------------------ ----------------- ------------------ ----------------- TOTAL INVESTMENT INCOME 1,428,311 1,547,685 4,295,507 4,741,811 ------------------ ----------------- ------------------ ----------------- OPERATING EXPENSES Interest 345,172 555,249 1,060,604 1,622,264 Salaries and employee benefits 275,959 220,055 763,525 654,103 Occupancy costs 50,383 35,945 148,624 109,428 Professional fees 152,349 133,372 507,231 395,743 Miscellaneous administrative expenses 321,188 256,471 927,697 711,966 Loss on assets acquired in satisfaction of loans, net 5,102 57,800 41,171 72,464 Foreclosure expenses 46,769 161,667 310,302 281,838 Write off and depreciation of interest and loans receivable 254,159 220,530 865,713 412,884 ------------------ ----------------- ------------------ ----------------- TOTAL OPERATING EXPENSES 1,451,081 1,641,089 4,624,867 4,260,690 ------------------ ----------------- ------------------ ----------------- OPERATING (LOSS) INCOME (22,770) (93,404) (329,360) 481,121 ------------------ ----------------- ------------------ ----------------- OTHER INCOME Gain on sale of securities - - 5,665 2,976 Equity in loss of investee (24,747) - (24,747) - ------------------ ----------------- ------------------ ----------------- TOTAL OTHER INCOME (24,747) - (19,082) 2,976 ------------------ ----------------- ------------------ ----------------- (LOSS) INCOME BEFORE INCOME TAXES (47,517) (93,404) (348,442) 484,097 ------------------ ----------------- ------------------ ----------------- INCOME TAXES 4,106 4,443 15,396 15,926 ------------------ ----------------- ------------------ ----------------- NET (LOSS) INCOME (51,623) (97,847) (363,838) 468,171 ------------------ ----------------- ------------------ ----------------- DIVIDENDS ON PREFERRED STOCK (84,375) (84,375) (253,125) (253,125) ------------------ ----------------- ------------------ ----------------- NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS $(135,998) $(182,222) $(616,963) $215,046 ------------------ ----------------- ------------------ ----------------- WEIGHTED AVERAGE SHARES OUTSTANDING - - Basic 2,035,600 2,035,600 2,035,600 2,035,600 ================== ================= ================== ================= - - Diluted 2,035,600 2,035,600 2,035,600 2,035,600 ================== ================= ================== ================= NET (LOSS) INCOME PER COMMON SHARE - - Basic $(0.07) $(0.09) $(0.30) $0.11 ================== ================= ================== ================= - - Diluted $(0.07) $(0.09) $(0.30) $0.11 ================== ================= ================== =================
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, 2004 and 2003 March 31, 2004 March 31, 2003 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $(363,838) $468,171 --------------- --------------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 49,765 23,187 Gain on sale of equity securities (5,665) (2,976) Equity in loss of investee 24,747 - Change in operating assets and liabilities: Changes in unrealized depreciation on loans receivable and accrued interest receivable (458,900) 99,000 Accrued interest receivable 796,902 (367,409) Prepaid expenses and other assets (118,997) (268,347) Accrued expenses and other liabilities 87,471 2,422 Accrued interest payable (155,723) (131,129) --------------- --------------- TOTAL ADJUSTMENTS 219,600 (645,252) --------------- --------------- NET CASH USED IN OPERATING ACTIVITIES (144,238) (177,081) --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Loans receivable (615,026) (1,944,158) Assets acquired 288,500 165,899 Receivables from debtors on sales of assets acquired in satisfaction of loans 7,000 (63,987) Proceeds from sale of equity securities 84,084 27,726 Purchases of equity securities (200,600) (545,986) Sale of automobiles 60,125 - Capital expenditures (369,505) (83,763) --------------- --------------- NET CASH USED IN INVESTING ACTIVITIES (745,422) (2,444,269) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds of notes payable, banks 3,430,000 8,385,000 Repayments of notes payable, banks (5,151,348) (6,325,000) Proceeds of debentures payable, SBA 6,950,000 5,050,000 Repayments of debentures payable, SBA (4,150,000) (3,710,000) Dividends paid (253,125) (789,499) --------------- --------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 825,527 2,610,501 --------------- ---------------
-4- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - Continued For the Nine Months Ended March 31, 2004 and 2003 March 31, 2004 March 31, 2003 -------------------- -------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (64,133) (10,849) CASH AND CASH EQUIVALENTS - Beginning 498,669 774,062 -------------------- -------------------- CASH AND CASH EQUIVALENTS - Ending $434,536 $763,213 ==================== ==================== SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES: Acquisition of medallions through foreclosure of loans receivable $(1,418,901) $- ==================== ====================
The accompanying notes are an integral part of these financial statements. -5- 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") as of March 31, 2004, and the related statements of operations, and cash flows for the three months and nine months ended March 31, 2004 and March 31, 2003 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, 2004 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 is 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, -6- 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. Basis of Consolidation The consolidated financial statements include the accounts of Ameritrans, Elk, EAF Holding Corporation ("EAF"), EAF Enterprises LLC, Medallion Auto Management LLC, EAF Leasing LLC, EAF Leasing II LLC and EAF Leasing III LLC, (collectively referred to as the "Company"). EAF, EAF Enterprises LLC, Medallion Auto Management LLC, EAF Leasing LLC, EAF Leasing II LLC and EAF Leasing III 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. EAF Leasing LLC was formed in August 2003 and began operations in October 2003. The purpose of EAF Leasing LLC is to own and lease medallions acquired in satisfaction of foreclosures by Elk. EAF Leasing II LLC was formed in August 2003 and began operations in October 2003. The purpose of EAF Leasing II LLC is to own and lease medallions acquired in satisfaction of foreclosures by Elk. EAF Leasing III LLC was formed in January 2004. The purpose of EAF Leasing III LLC is to own and lease medallions acquired in satisfaction of foreclosures by Elk. Ameritrans organized another subsidiary on June 8, 1998, Elk Capital Corporation ("Elk Capital"), which may engage in similar lending and investment activities as its parent, Elk. Since its inception, Elk Capital has had no operations. -7- Equity Investments Ameritrans invested $100,000 to obtain a 50% stock ownership interest in a company in August 2003. Since control of the entity resides with the other owner, as evident by the running of the day-to-day operations as well as the number of board seats, this entity is carried using the equity basis of accounting. Elk also obtained a 48% stock ownership interest in another company during December 2003 in exchange for providing 100% financing for this company to acquire and gain title to certain Chicago medallions from Elk arising from defaulted and foreclosed loans, to purchase vehicles, and for related start up costs. The profit or loss of this company is to be retained by the majority stockholder of this company. Commencing on or after July 1, 2007, and for a two and one-half year period thereafter, the majority stockholder has the right to purchase Elk's interest in this company at a price described in the stockholders' agreement, by giving notice and exercising its right to repurchase Elk's shares. Elk also has the right (put option) under the agreement to require the company to repurchase Elk's 48% interest in this company. Income Taxes The Company has elected to be taxed as a Regulated Investment Company ("RIC") under the Internal Revenue Code (the "Code"). An RIC generally is not taxed at the corporate level to the extent its income is distributed to its stockholders. In order to be taxed as a RIC, the Company must pay at least 90 percent of its net taxable investment 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. Net Income (Loss) Per Common 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 earnings per share ("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 2004 and 2003 as inclusion is anti-dilutive. Loan Valuations The Company's loan portfolio is carried at fair value. Since no ready market exists for these loans, the fair value is determined in good faith by the board of directors of the -8- Company ("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. The fair value of the loans has been determined to approximate cost less unrealized depreciation. Use Of Estimates In The Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 the loans. Reclassifications Certain amounts in the prior financial statements have been reclassified for comparative purposes to conform with the presentation used in the financial statements for the three months and nine months ended March 31, 2004. NOTE 2 - ACQUISITION OF MEDALLIONS AND OTHER PROPERTY During the nine months ended March 31, 2004, Elk transferred Chicago medallions obtained from defaulted and foreclosed loans to certain newly formed wholly-owned subsidiaries, which, in turn, lease the medallions to customers. The subsidiaries gained title by paying related transfer fees and satisfying outstanding liens with Elk and the city of Chicago. The subsidiaries borrowed funds in the amount of $1,418,901 from Elk to complete the purchases of the medallions. Another subsidiary, Medallion Auto Management LLC, purchased vehicles (aggregating $163,233) which it leases to individual taxi operators in conjunction with the medallions owned by EAF Enterprises LLC. Other capital expenditures included the purchase of furniture and equipment and additional leasehold improvements related to the additional office and storage space occupied in July 2003. NOTE 3 -- DEBENTURES PAYABLE TO SBA At March 31, 2004 and June 30, 2003 debentures payable to the SBA consisted of subordinated debentures with interest payable semiannually, as follows: -9- Current Effective 3/31/04 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)(4) $ - $ 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 4.12(2)(5) $ 5,000,000 $ - February 2004 March 2014 4.12(2)(5) $ 1,950,000 $ - ------------ ----------- $ 12,000,000 $ 9,200,000 ============ =========== (1) Elk was 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 these debentures. (3) The debentures matured and were paid in full during September 2003. (4) The debenture was prepaid in full during March 2004. (5) The fixed rate of 4.12% was determined on the pooling date of March 24, 2004. Prior to that date, the interim interest rates assigned to the $5,000,000 and the $1,950,000 debentures were 1.682% and 1.595%, respectively. 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 issued a commitment 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. In February 2004, Elk made the final draw down from this commitment. -10- NOTE 4 -- NOTES PAYABLE TO BANKS On March 31, 2004 and June 30, 2003 Elk had loan agreements with three (3) banks for lines of credit aggregating $40,000,000 and had $32,408,652 and $34,130,000 respectively, outstanding under these lines. The loans, which mature at various dates between May 15, 2004 and December 31, 2004, bear interest at the lower of either the reserve adjusted LIBOR rate plus 1.5% or the banks' prime rate 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 March 31, 2004 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. If the floating one-month LIBOR rate is below the fixed rate then Elk is obligated to pay the bank the difference in rates. When the one-month LIBOR rate is above the fixed rate then the bank is obligated to pay Elk the differences in rates. For the three months and nine months ended March 31, 2004, Elk incurred additional interest expense of $12,140 and $35,895 due to the fluctuation of interest rate. Lease Agreement In November 2003, the Board of Directors approved a new sublease with an affiliated entity for office space to take effect upon the expiration of the existing sublease, May 1, 2004, and to continue through April 30, 2014 and accounts for certain retroactive adjustments per the agreement. The Company is presently utilizing 37% of the landlord's space and therefore committed to the minimum 37% utilization factor on all rent, additional rent and electricity charges billed to landlord. The Company's rent share is currently $8,327 per month and subject to annual increases as per the master lease agreement between the landlord and Granoff Walker & Forlenza, P.C., whose stockholders are officers and directors of the Company. In the event that more space is utilized, the percentage of the total rent shall be increased accordingly. In addition, the Company is also obligated to pay for its share of overhead expenses as noted in the agreement, currently a minimum of $3,000 a month. -11- The future minimum rental and overhead costs for the next five years and in the aggregate thereafter are as follows: Year Ending June 30 Rent Overhead ----------- --------- -------- 2004 $ 34,607 $ 9,000 2005 139,777 36,000 2006 141,172 36,000 2007 142,616 36,000 2008 144,110 36,000 Thereafter 834,053 210,000 --------- -------- $1,436,335 $363,000 ========= ======== 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 Redeemable 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 Company's Participating Preferred Stock of record as of October 7, 2003. The Company's Board of Directors declared a dividend of $0.28125 per share or $84,375 on December 31, 2003 on the Company's 9 3/8% Cumulative Participating Redeemable Preferred Stock (the "Participating Preferred Stock") for the period October 1, 2003 through December 31, 2003, which was paid on January 20, 2004 to all holders of the Company's Participating Preferred Stock of record as of January 12, 2004. The Company's Board of Directors declared a dividend of $0.28125 per share or $84,375 on March 23, 2004 on the Company's 9 3/8% Cumulative Participating Redeemable Preferred Stock (the "Participating Preferred Stock") for the period January 1, 2004 through March 31, 2004, which was paid on April 12, 2004 to all holders of the Company's Participating Preferred Stock of record as of March 31, 2004. 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 thereto appearing in this Form 10-Q and the Company's Annual Report on Form 10-K for the year ended June 30, 2003. -12- This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When we refer to forward-looking statements or information, sometimes we use words such as "may," "will," "could," "should," "plans," "intends," "expects," "believes," "estimates," "anticipates" and "continues." The risk factors describe risks that may affect these statements but are not all-inclusive, particularly with respect to possible future events. Many things can happen that can cause actual results to be different from those we describe. 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, as amended. Elk primarily makes loans to persons who qualify under SBA regulation as socially or economically disadvantaged and makes loans and investments in 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 the cities of New York, Boston, Chicago and Miami taxicab medallions. Elk also makes loans and investments in other diversified businesses. At March 31, 2004, 74% of Elk's portfolio of loans was invested in loans secured by taxicab medallions and 26% 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 established 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 five of Elk's foreclosed medallions and leased them to new individual operators and Medallion Auto Management LLC purchased vehicles, which it leased with the medallions. The taxi operators have the option to purchase both the medallions and the vehicles. Elk also set up another three wholly owned subsidiaries, EAF Leasing LLC and EAF Leasing II LLC in August 2003 and EAF Leasing III LLC in January 2004. Commencing in October 2003, EAF Leasing LLC took title to ten of Elk's foreclosed medallions and EAF Leasing II LLC took title to another nine of Elk's foreclosed -13- medallions. As of March 31, 2004, EAF Leasing III LLC had not taken title to any of Elk's foreclosed medallions. These subsidiaries will lease the medallions to a large medallion operator. No option to purchase the medallions has been offered to the medallion operator. 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. The significant estimates made by the Company include (1) valuation of loans, (2) evaluation of the recoverability of various receivables, and (3) 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, collateral values, 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 March 31, 2004, are reasonable, actual results could differ materially from the estimated amounts recorded in the Company's financial statements. The 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 fair value. 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 cost is other than temporary, the related investment is written down to its new 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. -14- Results of Operations for the Nine Months Ended March 31, 2004 and 2003 Total Investment Income The Company's investment income for the period ended March 31, 2004 decreased by $446,304 or 9% to $4,295,507 as compared with the prior period ended March 31, 2003. This decrease was mainly due to the impact of lower average interest rates charged on new and modified loans as well as lower outstanding loans receivable. Operating Expenses Total operating expenses increased by $364,177 or 9% from $4,260,690 to $4,624,867. 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 March 31, 2004 decreased $561,660 or 35% when compared to the period ended March 31, 2003. This reflects the lower interest charged on outstanding bank borrowings and certain SBA debentures refinanced at lower rates during the current period. Salary and employee benefits increased $109,422 or 17% when compared with this period the year prior. This increase reflects the increases that were put into effect from recently amended officers' employment agreements. Occupancy costs increased $39,196 or 36%, when compared with the period ended March 31, 2003, primarily due to the rental of additional office and storage space starting July 2003. Professional fees increased $111,488 or 28% when compared with the similar period in the prior year. This increase reflects the additional legal fees incurred relating to the foreclosures of the Chicago medallion loans. Foreclosure expenses increased $28,464 or 10% and depreciation in the value of loans increased $452,829 or 110% when compared with this period the year prior. Both of these increases relate primarily to the foreclosures of the Chicago medallion loans. Other administrative expenses increased $215,731 or 30% when compared with this period the year prior. This increase relates primarily to increases in Chicago service fees, commissions, insurance and depreciation. Net Income (Loss) Net income decreased from $468,171 for the nine month period ended March 31, 2003 as compared to a net loss of $363,838 for the period ended March 31, 2004. 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 March 31, 2004 and 2003. Results of Operations for the Three Months Ended March 31, 2004 and 2003 Total Investment Income The Company's investment income for the three months ended March 31, 2004 decreased -15- $119,374 or 8% to $1,428,311 as compared with the period ended March 31, 2003. This decrease was mainly due to the impact of lower average interest rates charged on new and refinanced loans as well as lower outstanding loans receivable. Operating Expenses Total operating expenses decreased $190,008 or 12% from $1,641,089 to $1,451,081. This decrease was mainly due to lower interest costs and decreases in foreclosure expenses. Interest expenses for the three months ended March 31, 2004 decreased $210,077 or 38% when compared to the period ended March 31, 2003. 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 $55,904 or 25% when compared with the same quarter the prior year. This increase reflects the increases that were put into effect from recently amended officers' employment agreements. Professional fees increased $18,977 or 14% when compared with the same quarter year prior. This increase reflects the additional legal fees incurred relating to the foreclosure of the Chicago medallion loans. Foreclosure expenses decreased $114,898 or 71%. This decrease reflects the reduction of foreclosures of the Chicago medallion loans. The depreciation in the value of loans increased $33,629 or 15% when compared with the same quarter in the prior year. Other administrative expenses increased $64,717 or 25% when compared with the same quarter in the prior year. This increase relates primarily to increases in Chicago service fees, commissions, insurance and depreciation. Net Income (loss) Net loss decreased from $97,847 for the three months ended March 31, 2003 to a net loss of $51,623 for the quarter ended March 31, 2004. The decrease in the net loss for the period was attributable primarily to less write down relating to the Chicago foreclosures, combined with interest rate reductions as a result of the debt refinancings offset by increases in salaries and certain other administrative costs. Balance Sheet and Reserves Total assets increased by $378,107 as of March 31, 2004 when compared to total assets as of June 30, 2003. A decrease in loans receivable was partially offset by an increase in medallions owned, 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 February 2004, Elk made the final draw down in the amount of $1,950,000 from the commitment pool of $12,000,000. In March 2004, Elk prepaid a SBA debenture for $430,000. In addition, -16- Elk utilized these funds to pay down $1,721,348, net of proceeds on its short-term 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 bank and SBA indebtedness. Ameritrans also used part of the proceeds to start its own loan portfolio. At March 31, 2004, 73% of Elk's indebtedness was represented by indebtedness to its banks and 27% by the debentures issued to the SBA with fixed rates of interest plus user fees, which results in rates ranging from 4.99% to 5.54%. Elk currently may borrow up to $40,000,000 under its existing lines of credit, of which $7,591,348 is available at March 31, 2004, 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 prior to September 30, 2006. In July and December 2002, debentures payable to the SBA were drawn from this reserved pool in the amounts 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 and February 17, 2004, two additional debentures payable to the SBA were drawn in the amounts of $5,000,000 and $1,950,000, respectively to complete the $12,000,000 pool. The interim interest rates assigned were 1.682% and 1.595%, respectively. The fixed rate of 4.12% for both debentures was 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 4.99% 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. -17- 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 nine months ended March 31, 2004, the Company transferred Chicago medallions in the amount of $1,418,901 relating to defaulted and foreclosed loans to certain newly formed subsidiaries, which, in turn, are leasing those medallions to customers. Although Elk never had title to the medallions, which serve as collateral for loans, the subsidiaries gained title by paying related transfer fees and satisfying any outstanding liens with the city of Chicago. The subsidiaries borrowed funds from Elk to complete the purchases of the medallions. In connection with the above, 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 additional leasehold improvements relating to the additional office and storage space occupied in July 2003. Like Elk, Ameritrans distributes at least 90% of its investment company taxable income and, accordingly, will continue to rely upon external sources of funds to finance growth. In order to provide the funds necessary for our expansion strategy, the Company expects 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 2003 the FASB issued Interpretation No. 46 (revised), "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 December 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 FASB issued Statement of Financial Accounting Standards No. 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. In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 148 (SFAS 148), "Accounting for -18- 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 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 Accounting Principles Board No. 25. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's business activities are subject to market risk. The Company considers the principal types of market risk to be fluctuations in interest rates and portfolio valuations. The Company considers the management of risk essential to conducting its business. 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. In addition, the illiquidity of the Company's loan portfolio and investments may adversely affect its ability to dispose of loans at times when it may be advantageous for it to liquidate such portfolio or investments. Also, if it was 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 the Company borrows money to make loans and investments, its net operating income is dependent upon the difference between the rate at which it borrows funds and the rate at which it loans and invests 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 interest income. As interest rates rise, interest costs increase, decreasing the net interest rate spread the Company receives and -19- thereby adversely affect profitability. Although the Company intends to continue to manage its interest rate risk through asset and liability management, including the use of interest rate swaps, general rises in interest rates will tend to reduce the interest rate spread in the short term. ITEM 4. CONTROLS AND PROCEDURES We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e) promulgated under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Chief Executive Officer (also acting Chief Financial Officer) has conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, he has concluded that such controls and procedures were effective as of the end of the period covered by this report. There were no changes in our internal controls over financial reporting during the period covered by this report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II. OTHER INFORMATION ITEM 6-- EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Letter Agreement between Israel Discount Bank of New York and Elk dated April 13, 2004 extending line of credit. 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 A Form 8-K was filed on February 18, 2004 in response to Items 7 and 12 of that form. -20- 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. DATE: MAY 14, 2004 BY: /s/ GARY C. GRANOFF -------------------------- GARY C. GRANOFF CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER AND CHIEF ACCOUNTING OFFICER) -21- EX-10 2 aex101.txt LETTER AGREEMENT Exhibit 10.1 April 13, 2004 Mr. Gary Granoff Elk Associates Funding Corp. 747 Third Avenue New York, NY 10017 Dear Gary: We are pleased to confirm that we hold available a line of credit for Elk Associates Funding Corp. in the amount of $16,000,000. Credit availability under this line is subject to the receipt of and continuing satisfaction with current financial and other information which current information is to be furnished by you to the Bank as we may, from time to time, require. The line of credit expires on May 15, 2004. As in the past, the line of credit may be withdrawn at the Bank's sole discretion at any time. If you have any questions, please call me. Very truly yours, Robert J. Fainelli First Vice President ISRAEL DISCOUNT BANK OF NEW YORK o MEMBER FDIC 511 FIFTH AVE. NEW YORK, NY 10017-4997 o TEL: (212) 551-8500 EX-31 3 aex311.txt 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 (the "report"); 2. Based on my knowledge, the 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 the report; 3. Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in the report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me 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 as of a date within 90 days prior to the filing date of the report (evaluation date); and (c) Presented in this report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the evaluation date. 5. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of the board of directors (or persons performing the equivalent functions): (a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data; and have identified for the registrant's auditors any material weakness in internal controls; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in the report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness. Dated: May 14, 2004 /s/ GARY C. GRANOFF -------------------------------------- GARY C. GRANOFF PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER EX-32 4 amerex321.txt 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 March 31, 2004, 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 May 14, 2004 -----END PRIVACY-ENHANCED MESSAGE-----