10-Q 1 final10qmay162004.txt 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, 2005 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 of incorporation) (I.R.S. Employer Identification No.) 747 Third Avenue, New York, New York 10017 (Address of Registrant's principal executive office) (Zip Code) (800) 214-1047 (Registrant's telephone number, including area code) 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 |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes |_| No |X| The number of shares of Common Stock, par value $.0001 per share, outstanding as of May 10, 2005: 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, 2005 (unaudited) and June 30, 2004 ......................... 1 Consolidated Statements of Operations -- For the Three Months and Nine Months Ended March 31, 2005 and 2004 (unaudited)____________________________ 3 Consolidated Statements of Cash Flows -- For the Nine Months Ended March 31, 2005 and 2004 (unaudited)__________________ 4 Notes to Consolidated Financial Statements. _________________________________ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 11 Item 3. Quantitative and Qualitative Disclosure about Market Risk ....................................... 17 Item 4. Controls and Procedures .................. 18 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.......... 18 Signatures ........................................ 19 (All other items omitted from Part II are inapplicable) -ii- PART I. FINANCIAL INFORMATION Item 1. Financial Statements AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2005 (Unaudited) and June 30, 2004 ASSETS March 31, 2005 June 30, 2004 Loans receivable $53,414,168 $49,900,989 Less: unrealized depreciation on loans receivable (541,401) (509,770) Loans receivable, net 52,872,767 49,391,219 Cash and cash equivalents 755,127 416,600 Accrued interest receivable, net of unrealized depreciation of $92,000 and $30,500, respectively 786,946 969,912 Assets acquired in satisfaction of loans 474,728 1,421,723 Receivables from debtors on sales of assets acquired in satisfaction of loans 463,233 422,158 Equity securities 1,196,838 1,038,617 Furniture, equipment and leasehold improvements, net 370,506 439,262 Medallions Under Lease 2,382,201 2,382,201 Prepaid expenses and other assets 599,873 610,214 TOTAL ASSETS $59,902,219 $57,091,906
The accompanying notes are an integral part of these financial statements. AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2005 (Unaudited) and June 30, 2004 LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 2004 June 30, 2004 LIABILITIES Debentures payable to SBA $12,000,000 $12,000,000 Notes payable, banks 31,970,652 28,908,652 Accrued expenses and other liabilities 791,089 578,790 Accrued interest payable 124,908 271,630 Dividends payable 84,375 84,375 TOTAL LIABILITIES 44,971,024 41,843,447 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock 500,000 shares authorized, none issued or outstanding - - 9 3/8% cumulative participating callable 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 (2,327,761) (1,902,408) Accumulated other comprehensive loss (140,794) (248,883) 15,001,195 15,318,459 Less: Treasury stock, at cost, 10,000 shares of common stock (70,000) (70,000) TOTAL STOCKHOLDERS' EQUITY 14,931,195 15,248,459 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $59,902,219 $57,091,906
The accompanying notes are an integral part of these financial statements. AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months and Nine Months Ended March 31, 2005 and 2004 (Unaudited) Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended March 31, March 31, March 31, March 31, 2005 2004 2005 2004 INVESTMENT INCOME Interest on loans receivable $1,213,236 $1,249,444 $3,497,001 $3,970,646 Fees and other income 129,594 130,030 318,821 238,476 Leasing income 50,826 48,837 176,159 86,385 TOTAL INVESTMENT INCOME 1,393,656 1,428,311 3,991,981 4,295,507 OPERATING EXPENSES Interest 449,279 345,172 1,272,435 1,060,604 Salaries and employee benefits 292,927 275,959 848,672 763,525 Occupancy costs 46,336 50,383 141,953 148,624 Professional fees 148,914 152,349 480,212 507,231 Other administrative expenses 314,838 321,188 857,791 927,697 Loss and impairments on assets acquired in satisfaction of loans, net 18,198 5,102 50,745 41,171 Foreclosure expense - 46,769 14,194 310,302 Write off and depreciation on interest and loans receivable 81,356 254,159 471,415 865,713 TOTAL OPERATING EXPENSES 1,351,848 1,451,081 4,137,417 4,624,867 OPERATING LOSS 41,808 (22,770) (145,436) (329,360) OTHER INCOME (EXPENSE) (Loss) gain on sale of securities - - (50,000) 5,665 Gain on sale of asset acquired 32,829 - 34,713 - Equity in loss of investee - (24,747) (4,021) (24,747) TOTAL OTHER INCOME (EXPENSE) 32,829 (24,747) (19,308) (19,082) LOSS BEFORE PROVISION FOR INCOME TAXES 74,637 (47,517) (164,744) (348,442) PROVISION FOR INCOME TAXES 4,337 4,106 7,484 15,396 NET LOSS $ 70,300 $ (51,623) $(172,228) $(363,838) DIVIDENDS ON PREFERRED STOCK $ (84,375) $ (84,375) $(253,125) $(253,125) NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (14,075) $(135,998) $(425,353) $(616,963) 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 PER COMMON SHARE - Basic $ (0.01) $ (0.07) $ (0.21) $ (0.30) - Diluted $ (0.01) $ (0.07) $ (0.21) $ (0.30)
The accompanying notes are an integral part of these financial statements AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended March 31, 2005 and 2004 (Unaudited) March 31, March 31, 2005 2004 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (172,228) $ (363,838) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 70,404 49,765 Loss (gain) on sale of equity securities 50,000 (5,665) Gain on sale of asset acquired (34,713) - Equity in loss of investee 4,021 24,747 Change in operating assets and liabilities: Changes in unrealized depreciation on loans receivable and accrued interest receivable 109,131 (458,900) Accrued interest receivable 105,466 796,902 Prepaid expenses and other assets 10,341 (118,997) Accrued expenses and other liabilities 212,229 87,471 Accrued interest payable (146,722) (155,723) TOTAL ADJUSTMENTS 380,227 219,600 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 207,999 (144,238) CASH FLOWS FROM INVESTING ACTIVITIES Loans receivable (3,666,379) (615,026) Assets acquired in satisfaction of loans 696,275 288,500 Receivables from debtors on sales of assets acquired in satisfaction of loans 397,558 7,000 Proceeds from sale of equity securities - 84,084 Purchases of equity securities (104,153) (200,600) Sale of automobiles - 60,125 Capital expenditures (1,649) (369,505) NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (2,678,347) (745,422) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable, banks 33,995,922 3,430,000 Repayments of notes payable, banks (30,933,922) (5,151,348) Proceeds from debentures payable to SBA - 6,950,000 Repayment of debentures payable to SBA - (4,150,000) Dividends paid (253,125) (253,125) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,808,875 825,527 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 338,527 (64,133) CASH AND CASH EQUIVALENTS - Beginning 416,600 498,669 CASH AND CASH EQUIVALENTS - Ending $ 755,127 $434,536
The accompanying notes are an integral part of these financial statements. AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) For the Nine Months Ended March 31, 2005 and 2004 (Unaudited) March 31, 2005 March 31, 2004 SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES: Unrealized gain (loss) on equity securities arising during the period $ 63,089 $ (9,666) Reclassification adjustment for loss (gain) included in net loss $ 45,000 $ (5,665) Reclassification of assets acquired to receivables from debtors on sales of assets acquired $ (438,633) $ - Reclassification of loans assets acquired in satisfaction of loans $ (153,200) $ - Acquisition of medallions through foreclosure of loans receivable $ - $(1,418,901)
The accompanying notes are an integral part of these financial statements. AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies Financial Statements The consolidated balance sheet of Ameritrans Capital Corporation ("Ameritrans" or the "Company") as of March 31, 2005, and the related consolidated statements of operations and cash flows for the three months and nine months ended March 31, 2005 and 2004 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 accounting principles generally accepted in the United States 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, 2005 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, 2004 as filed with the Commission. Organization and Principal Business Activity Ameritrans, a Delaware corporation, is a specialty finance company that through its subsidiary, Elk, makes loans primarily 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. Ameritrans is a regulated investment company under the Internal Revenue Code. 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. Basis of Consolidation The consolidated financial statements include the accounts of Ameritrans, Elk, and Elk's wholly owned subsidiaries, EAF Holding Corporation, 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"). All significant inter- company transactions have been eliminated in consolidation. EAF Holding Corporation, which was formed in June 1992 and began operations in December 1993, owns and operates certain real estate assets acquired in satisfaction of defaulted loans made by Elk. EAF Enterprises LLC, which was formed in June 2003 and began operations in July 2003, owns, leases and resells medallions acquired in satisfaction of foreclosures by Elk. Medallion Auto Management LLC, which was formed in June 2003 and began operations in July 2003, owns, leases and resells automobiles in conjunction with the activities of EAF Enterprises LLC. EAF Leasing LLC and EAF Leasing II LLC, which were formed in August 2003 and began operations in October 2003, own and lease medallions acquired in satisfaction of foreclosures by Elk. EAF Leasing III LLC, which was formed in January 2004 and began operations in April 2004, owns and leases 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 lending and investment activities similar to its parent. Since its inception, Elk Capital has had no operations. Income Taxes The Company has elected to be taxed as a Regulated Investment Company ("RIC") under the Internal Revenue Code (the "Code"). A RIC generally is not taxed at the corporate level to the extent its income is distributed to its stockholders. In order to qualify as a RIC, the Company must payout 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 2005, the Company intends to make the required distributions to its stockholders. The Company is subject to certain state and local franchise taxes, as well as related minimum filing fees assessed by state taxing authorities. Such taxes and fees are reported as "provisions for income taxes" and reflected in each of the fiscal years presented. Earnings (Loss) Per Share Basic earnings (loss) per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon the exercise of stock options and warrants. The difference between reported basic and diluted weighted average common shares results from the assumption that all dilutive stock options outstanding were exercised. For the periods presented, the effect of common stock equivalents has been excluded from the diluted calculation since the effect would be antidilutive. 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 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 to support the loans, individual credit risks, historical loss experience and the relationships between current and projected market rates and portfolio rates of interest and maturities. The Board of Directors has determined that the fair value of the loans approximates cost less unrealized depreciation. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make extensive use of 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 loans receivable and other financial instruments. 2. Medallions During the year ended June 30, 2004, Elk transferred City of Chicago taxicab medallions obtained from defaulted and foreclosed loans to certain newly formed wholly-owned subsidiaries. The subsidiaries borrowed funds in the amount of $2,382,201 from Elk to complete the purchases of the medallions and gained title by paying related transfer fees and satisfying outstanding liens with Elk and the City of Chicago. The subsidiaries, in turn, lease these medallions to taxicab operators or companies in the Chicago market under weekly and long-term operating leases. The weekly leases, which include both medallions and vehicles have been made with individuals. These weekly leases automatically renew each week, up to a maximum period of 157 weeks, but may be terminated at the option of the lessee at the conclusion of any weekly period. These lease terms also include an option for the lessee to purchase either the medallion or vehicle, at an amount defined in the agreement, at any time throughout the term of the lease, with credit given for a portion of the lease payments towards the purchase price. As of March 31, 2005 and June 30, 2004, no purchase options had been exercised. The long-term medallion leases have been made with taxicab companies expire from December 31, 2005 through February 28, 2006, and may be canceled by either party with forty-five days advance written notice. Leasing income under all medallion and taxi cab leases for the three months and nine months ended March 31, 2005 was $50,826 and $176,159, respectively. 3. Debentures Payable to SBA At March 31, 2005 and June 30, 2004 debentures payable to the SBA consisted of subordinated debentures with interest payable semiannually, as follows: Effective 12/31/04 and 6/30/04 Issue Date Due Date Interest Rate Principal Amount July 2002 September 2012 4.67%(1) $2,050,000 December 2002 March 2013 4.63%(1) 3,000,000 September 2003 March 2014 4.12%(1) 5,000,000 February 2004 March 2014 4.12%(1) 1,950,000 $12,000,000
(1) Elk is required to pay an additional annual user fee of 0.866% on these debentures. 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 In 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 by the Company on or prior to September 30, 2006. A 2% 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 the $12,000,000 commitment was obtained. In February 2004, Elk made the final draw down under this commitment. 4. Notes Payable to Banks At March 31, 2005 and June 30, 2004 Elk had loan agreements with three banks for lines of credit aggregating $40,000,000. At March 31, 2005 and June 30, 2004, $31,970,652 and $28,908,652 respectively, were outstanding under these lines. The loans, which mature at various dates between May 31, 2005 and December 31, 2005, 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 that the banks will extend these lines of credit for another year, as has been their practice in previous years. Pursuant to the terms of the agreements the Company is required to comply with certain covenants and conditions, as defined therein. The Company has pledged its loans receivable and other assets as collateral for the above lines of credit. 5. Commitments and Contingencies Interest Rate Swaps On February 11, 2003, Elk entered into an interest rate swap transaction for $5,000,000 with a bank, which expired February 11, 2005. Elk entered into this swap transaction to hedge-against an upward movement in interest rates relating to outstanding bank debt. The swap transaction provided for a fixed rate of 3.56% for Elk. If the floating one-month LIBOR rate fell below the fixed rate, Elk was obligated to pay the bank for the difference in rates. But, if the one-month LIBOR rate rose above the fixed rate, the bank was obligated to pay Elk for the differences in rates. 6. Comprehensive Income (Loss) Total comprehensive income (loss) for the three-month periods ended March 31, 2005 and 2004, after considering other comprehensive income (loss including unrealized gains on marketable securities of $55,981 and $1,000, was $126,281 and ($50,623), respectively. Total compresensive income (loss) for the nine-month period ended March 31, 2005 and 2004, after considering other compresensive income (loss) including unrealized gains (losses) on marketable securities of $108,089 and ($15,331), was ($64,139) and ($379,169), respectively. 7. Other Matters Quarterly Dividend The Company's Board of Directors declared a dividend of $0.28125 per share or $84,375 on September 21, 2004 on the Company's 9 3/8% Cumulative Participating Preferred Stock (the "Participating Preferred Stock") for the period July 1, 2004 through September 30, 2004, which was paid on October 15, 2004 to all holders of record as of September 30, 2004. Similarly, on December 20, 2004, the Company's Board of Directors declared a dividend of $0.28125 per share or $84,375 on the Company's 9 3/8% Cumulative Participating Preferred Stock for the period October 1, 2004 through December 31, 2004, which was paid on January 15, 2005 to all holders of record as of December 31, 2004. On March 22, 2005, the Company's Board of Directors declared a dividend of $0.28125 per share or $84,375 on the Company's 9 3/8% Cumulative Participating Preferred Stock for the period January 1, 2005 through March 31, 2005, which was paid on April 18, 2005 to all holders of record as of April 1, 2005. Total dividends paid aggegated $253,125 in each of the nine months ended March 31, 2005 and 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 therewith appearing in this report Form 10-Q and in the Company's Annual Report on Form 10-K for the year ended June 30, 2004. Critical Accounting Policies In the preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States, management uses judgment in selecting policies and procedures and making estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Significant estimates that the Company makes include valuation of loans and equity investments, 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 the financial condition of the debtors and its ability to enforce provisions of its contracts in the event of disputes, through litigation if necessary. Although the Company believes that estimates and assumptions used in determining the recorded amounts of net assets and liabilities at March 31, 2005, are reasonable, actual results could differ materially from the estimated amounts recorded in the Company's financial statements. Our key critical accounting policies are those applicable to the valuation of loans receivable and other investments, including medallions, and contingencies from daily operations, as discussed below: Valuation of Loans Receivable. For loans receivable, fair value generally approximates cost less unrealized depreciation. Overall financial condition of the borrower, the adequacy of the collateral supporting the loans, individual credit risks, historical loss experience and other factors are criteria considered in quantifying the unrealized depreciation, if any, that might exist at the valuation date. 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 estimated fair value. For these non-quoted investments, the Company reviews 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 cost of disposal. Losses incurred at the time of foreclosure are charged to the unrealized depreciation on loans receivable. Subsequent reductions in estimated net realizable value are charged to operations as losses on assets acquired in satisfaction of loans. Medallions. The Company obtained medallions through foreclosure of loans and the value of such medallions are carried at the lower of the net value of the related foreclosed loans or the fair market value of the medallions. The medallions are being treated as having indefinite lives, therefore, the assets are not being amortized. However, the Company periodically tests their carrying value for impairment. Contingencies. The Company is subject to legal proceedings in the course of its daily operations from enforcement of its rights in disputes pursuant to the terms of various contractual arrangements. In this connection, the Company assesses the likelihood of any adverse judgment or outcomes to these matters as well as a potential range of probable losses. A determination of the amount of reserve required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters. 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 investment companies under the Investment Company Act of 1940. Elk makes loans to and investments in businesses that qualify under SBA regulations for funding under the Small Business Investment Act of 1958, as amended. 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, 2005, 74% of Elk's loan portfolio consisted of loans secured by taxi medallions and 26% consisted of loans to other diversified businesses. From inception through April 2002, Ameritrans' only activity had been the operations of Elk. In May 2002, Ameritrans commenced making loans to businesses using the proceeds raised from a public offering, which was completed in April 2002. Elk created two additional wholly-owned subsidiaries, EAF Enterprises LLC and Medallion Auto Management LLC, in June 2003. Beginning July 2003, EAF Enterprises LLC took title to five of Elk's foreclosure medallions and leased them to individual operators and Medallion Auto Management LLC purchased "used" vehicles to be leased with the medallions. The taxi operators have the option to purchase both the medallions and vehicles. Elk created two more wholly-owned subsidiaries, EAF Leasing LLC and EAF Leasing II LLC, in August 2003. Starting October 2003, EAF Leasing LLC and EAF Leasing II LLC acquired fourteen and thirteen medallions, respectively, in satisfaction of foreclosures from Elk and leased them to corporate operators. Elk created another wholly-owned subsidiary, EAF Leasing III LLC, in January 2004. Commencing in April 2004, Elk transferred eight medallions acquired in satisfaction of foreclosures to EAF Leasing III LLC which, in turn, leased them to a corporate operator. Results of Operations for the Three Months Ended March 31, 2005 and 2004 Total Investment Income The Company's interest income for the three months ended March 31, 2005 decreased $36,208 or 3% to $1,213,236 as compared to the comparable period ended March 31, 2004, as a result of lower average interest rates charged on new and modified loans. The decrease of interest income was partially offset by an increase in medallion and vehicle leasing income of $1,989. Operating Expenses Interest expense for the three months ended March 31, 2005 increased $104,107 or 30% to $449,279 as compared to the three months ended March 31, 2004, due to higher interest rates charged on outstanding bank borrowing as well as higher outstanding bank notes payable. Interest rates charged on two outstanding SBA debentures in the amount of $5,000,000 and $1,950,000, respectively, also increased due to the assignment of the long term fixed rate of 4.12% on the pooling date of March 24, 2004 adjusted from the interim rates of 1.682% and 1.595%, respectively. Salaries and employee benefits increased $16,968 or 6% as compared to the similar period in the prior year. These increases resulted primarily from increases specified in certain officers' employment agreements as well as commissions paid to an employee. Professional fees decreased $3,435 or 2% as compared to the comparable period in the prior year due primarily to a reduction in Chicago legal fees. Foreclosure expenses decreased $46,769 or 100% and write off and depreciation of interest and loans receivable decreased $172,803 or 68% as compared to the similar quarter in the prior year. Both of these decreases reflect the reduction of foreclosures of Chicago medallions loans. Other administrative expenses decreased $6,350 or 2% as compared to the similar period in the prior year, due primarily to a reduction in Chicago service fees and computer expense partially offset by increases in consultant fees related to compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Net Income (Loss) Net income increased from a net loss of $51,623 in the period ended March 31, 2004 to a net income of $70,300 in the period ended March 31, 2005. The increase in net income between the periods was attributable primarily to fewer write-downs of the Chicago loan portfolio and related foreclosure expenses, which were partially offset by increases in interest and salaries. Dividends of Participating Preferred Stock amounted to $84,375 for the three months ended March 31, 2005 and 2004. Results of Operations for the Nine Months Ended March 31, 2005 and 2004 Total Investment Income The Company's interest income for the nine months ended March 31, 2005 decreased $473,645 or 12% to $3,497,001 as compared with the comparable period ended March 31, 2004, as a result of lower average interest rates charged on new and modified loans. The decrease in interest income was partially offset by an increase in other fees of $80,345, primarily due to an increase in origination fees, and an increase in medallion and vehicle leasing income of $89,774. Operating Expenses Interest expense for the nine months ended March 31, 2005 increased $211,831 or 20% to $1,272,435 as compared to the nine months ended March 31, 2004, due to higher interest rates charged on outstanding bank borrowings as well as higher outstanding bank notes payable. Interest rates charged on two outstanding SBA debentures in the amount of $5,000,000 and $1,950,000 respectively, also increased due to the assignment of the long term fixed rate of 4.12% on the pooling date of March 24, 2004 adjusted from the interim rates of 1.682% and 1.595% respectively. Salaries and employee benefits increased $85,147 or 11% as compared to the similar period in the prior year. These increases resulted primarily from increases specified in certain officers' employment agreements as well as the addition of an employee retained in January 2004. Professional fees decreased $27,019 or 5% as compared to the comparable period in the prior year due primarily to a reduction in Chicago legal fees. Foreclosure expenses decreased $296,108 or 95% and write off and depreciation of interest and loans receivable decreased $394,298 or 46% as compared to the similar period in the prior year. Both of these decreases reflect the reduction of foreclosures of Chicago medallion loans. Other administrative expenses decreased $69,906 or 8% as compared to the similar period in the prior year, due primarily to a reduction in Chicago service fees and computer expense partially offset by increases in commissions depreciation and consultant fees related to compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Net Loss Net loss for the nine months ended March 31, 2005 decreased by $191,610 or 53% to $172,228 as compared to the comparable period ended March 31, 2004. The decrease in net loss between the periods was attributable primarily to a reduction in write-downs of the Chicago loan portfolio and related foreclosure expenses, which were partially offset by increases in interest and salaries. Dividends of Participating Preferred Stock amounted to $253,125 for the nine months ended March 31, 2005 and 2004. Balance Sheet and Reserves Total assets increased by $2,810,313 as of March 31, 2005 as compared to total assets as of June 30, 2004. This increase was due to higher outstanding loans receivable, an increase in equity securities, partially offset by reductions in assets acquired in satisfaction of loans due to sale of assets acquired. In addition, Elk increased its short-term bank borrowings by $3,062,000, net of repayments made. Liquidity and Capital Resources The Company has funded its operations through private placements and public offerings of its securities, bank financing, the issuance to the SBA of its subordinated long-term debentures, loan amortization and prepayments. As a RIC, the Company distributes at least 90% of our investment company taxable income. Consequently, the Company primarily relies upon external sources of funds to finance growth. 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, 2005, 73% of Elk's indebtedness was represented by indebtedness to its banks and 27% by debentures issued to the SBA with fixed rates of interest plus user fees resulting in rates ranging from 4.99% to 5.54%. Elk currently may borrow up to $40,000,000, $8,029,348 of which was available for draw down as of March 31, 2005, under its existing lines of credit, subject to 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, 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, subsequently adjusted to long term fixed rates of 4.67% and 4.628% determined on the pooling dates of September 25, 2002 and March 26, 2003, respectively. On September 15, 2003 and February 17, 2004, two new debentures payable to the SBA were drawn in the amount of $5,000,000 and $1,950,000, respectively. Interim interest rates assigned were 1.682% and 1.595%, respectively, subsequently adjusted to the long term fixed rate of 4.12% on the pooling date of March 24, 2004. In addition to the fixed rates, there is an additional annual SBA user fee on each debenture of 0.87% per annum making the rates 5.54%, 5.498% and 4.99% before applicable amortization of points and fees. The draw down in February 2004 was the final draw from the $12,000,000 commitment. 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. Like Elk, Ameritrans will distribute 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 expansion, management expects to raise additional capital and to incur, from time to time, additional bank indebtedness and (if deemed necessary) to obtain SBA loans. There can be no assurances that such additional financing will be available on acceptable terms. New Accounting Standards In December 2004, the FASB issued Statement No. 123 (revised), "Share-Based Payment." This standard is a revision of FASB Statement No. 123, Accounting for Stock Based Compensation, and requires all equity-based awards to employees to be valued at their fair value and charged to operations over the employee service period. This statement is in effect for the first interim periods after June 15, 2005. This statement applies to all employee awards granted, modified, or settled after the effective date. Adoption of this Standard is not expected to have a material impact on the Company's consolidated results of operations and financial position. In December 2004, the FASB also issued Statement No. 153, Exchanges of Non- monetary Assets ("SFAS No. 153"), which amends APB Opinion No. 29, Accounting for Non-monetary Transactions ("APB No. 29"), Statement No. 153 eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets in APB No. 29 and replaces it with an exception for exchanges that do not have commercial substance. This statement specifies that a non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of the Statement are effective for nonmonetary asset exchanges occuring in fiscal periods beginning after June 15, 2005. The adoption of this statement is not expected to have a material impact on the Company's consolidated financial position or results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 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 Commission'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. The Company's business activities contain elements of 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 of loans and investments 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 and loans. The Company adjusts the valuation of the portfolio of loans and investments quarterly to reflect the Board of Directors' estimate of the current fair value of each investment and loan in the portfolio. Any changes in estimated fair value of loans are recorded in the Company's balance sheet as unrealized depreciation on loans receivable and also in the Company's statement of operations as write off and depreciation on interest and loans receivable. Any changes in estimated fair value of investments are recorded in the Company's balance sheet as accumulated other comprehensive loss. In addition, the illiquidity of our investments and loan portfolio may adversely affect our ability to dispose of investments or loans at times when it may be advantageous for us to liquidate such investments or loans. Also, if we were required to liquidate some or all of these items in the portfolio, the proceeds of such liquidation might be significantly less than the current value of such investments or loans. 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 The Company maintains disclosure controls and procedures as defined under the Securities Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our periodic reports filed pursuant to the rules promulgated under the Exchange Act are 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 including our Chief Executive Officer (also acting as Chief Financial Officer), to allow timely decisions regarding required disclosure. 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. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (also acting as Chief Financial Officer), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the Company concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in timely communicating the material information required to be included in our periodic SEC filings. There were no changes to the Company's internal controls over financial reporting that occurred during our most recently completed fiscal quarter 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 May 5, 2005 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 On March 22, 2005, the Company filed a current report on Form 8-K reporting under Items 2.02 and 9.01 that the Company issued a press release announcing its payment of dividends to holders of its preferred stock. On February 23, 2005, the Company filed a current report on Form 8-K reporting under Item 2.02 that the Company issued a press release announcing its share ownership in Fusion Telecommunications International Inc. On February 14, 2005, the Company filed a current report on Form 8-K reporting under Items 2.02 and 9.01 that the Company issued a press release announcing its second quarter results. (All other items of Part II are inapplicable) 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 Dated: May 16, 2005 By: /s/ Gary C. Granoff Gary C. Granoff President, Chief Executive Officer and Chief Financial Officer 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, 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 the report. 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a 15(e) and 15d 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a 15(f) and 15d 15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, 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) Designed such internal control over financial reporting, or caused such internal controls over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principle; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my 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; and (d) 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. I have disclosed, based on my 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: May 16, 2005 By: /s/ Gary C. Granoff Gary C. Granoff President, Chief Executive Officer and Chief Financial Officer 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, 2005, 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. By: /s/ Gary C. Granoff Gary C. Granoff President, Chief Executive Officer, and Chief Financial Officer May 16, 2005