-----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, OgH2AHadhTCKQbJSwuMG857nLvJHLFaEfmNlQ67YsLt+lDb+3gMgeYh4N3VKEWk9 JZDcAgGo3jRtovbvMz/yVw== 0001169232-03-003818.txt : 20080626 0001169232-03-003818.hdr.sgml : 20080626 20030515164201 ACCESSION NUMBER: 0001169232-03-003818 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 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: 03705525 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 d55533_10-q.txt QUARTERLY REPORT 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, 2003 or |_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____ to _____ Commission File Number 0-22153 AMERITRANS CAPITAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 52-2102424 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 747 Third Avenue Fourth Floor New York, New York 10017 (Address of Registrant's (Zip Code) principal executive office) Registrant's telephone number, including area code: (800) 214-1047 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| The number of shares of Common Stock, par value $.0001 per share, outstanding as of May 14, 2003: 2,035,600 AMERITRANS CAPITAL CORPORATION FORM 10-Q Table of Contents PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of March 31, 2003 (unaudited) and June 30, 2002 ............................... 1 Consolidated Statements of Operations -- For the Three Months and Nine Months Ended March 31, 2003 and 2002 (unaudited) ... 3 Consolidated Statements of Cash Flows -- For the Nine Months Ended March 31, 2003 and 2002 (unaudited) ............ 4 Notes to Consolidated Financial Statements .................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................... 13 Item 3. Quantitative and Qualitative Disclosure about Market Risk ....... 16 Item 4. Controls and Procedures ......................................... 16 Part II. OTHER INFORMATION .............................................. 17 Item 6. Exhibits and Reports on Form 8-K ................................ 17 Signatures ...................................................... 17 -ii- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2003 (Unaudited) and June 30, 2002 ASSETS March 31, 2003 June 30, 2002 -------------- ------------- Loans receivable $ 56,973,994 $ 55,029,831 Less: unrealized depreciation on loans receivable (238,500) (238,500) ------------ ------------ 56,735,494 54,791,331 Cash and cash equivalents 763,213 774,062 Accrued interest receivable, net of unrealized depreciation of $399,000 and $206,272 respectively 1,465,484 1,197,075 Assets acquired in satisfaction of loans 942,189 1,108,088 Receivables from debtors on sales of assets acquired in satisfaction of loans 431,258 367,271 Equity securities 964,563 443,327 Furniture, fixtures and leasehold improvements, net 168,333 107,757 Prepaid expenses and other assets 487,652 219,305 ------------ ------------ TOTAL ASSETS $ 61,958,186 $ 59,008,216 ============ ============ The accompanying notes are an integral part of these financial statements. -1- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2003 (Unaudited) and June 30, 2002 LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 2003 June 30, 2002 -------------- ------------- LIABILITIES Debentures payable to SBA $ 9,200,000 $ 7,860,000 Notes payable, banks 35,780,000 33,720,000 Accrued expenses and other liabilities 436,761 434,339 Accrued interest payable 127,229 258,358 Dividends payable 84,375 68,438 ------------ ------------ TOTAL LIABILITIES 45,628,365 42,341,135 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock 500,000 shares authorized, none issued or outstanding -- -- 9 3/8% Cumulative participating 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 and 2,035,600 shares outstanding, 205 205 Additional paid-in-capital 13,869,545 13,869,545 Accumulated deficit (1,040,387) (703,127) Accumulated other comprehensive loss (29,542) (29,542) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 16,399,821 16,737,081 ------------ ------------ Treasury stock, at cost, 10,000 shares common stock (70,000) (70,000) ------------ ------------ NET STOCKHOLDERS' EQUITY 16,329,821 16,667,081 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 61,958,186 $ 59,008,216 ============ ============ The accompanying notes are an integral part of these financial statements. -2- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months and Nine Months Ended March 31, 2003 and 2002
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended March 31, 2003 March 31, 2002 March 31, 2003 March 31, 2002 ------------------ ------------------ ----------------- ----------------- INVESTMENT INCOME Interest on loans receivable $ 1,499,081 $1,533,452 $ 4,593,638 $4,433,111 Fees and other income 48,604 104,855 151,149 204,328 ----------- ---------- ----------- ---------- TOTAL INVESTMENT INCOME 1,547,685 1,638,307 4,744,787 4,637,439 ----------- ---------- ----------- ---------- OPERATING EXPENSES Interest 555,249 652,857 1,622,264 2,025,435 Salaries and employee benefits 220,055 215,292 654,103 554,741 Legal fees 82,152 84,708 235,415 183,263 Miscellaneous administrative expenses 331,886 281,296 954,472 706,440 Loss on assets acquired in satisfaction of loans, net 57,800 14,494 72,464 64,660 Directors' fee 11,750 6,375 27,250 19,075 Foreclosure expenses 161,667 -- 281,838 -- Write off and depreciation of interest and loans receivable 220,530 161,088 412,884 215,931 ----------- ---------- ----------- ---------- TOTAL OPERATING EXPENSES 1,641,089 1,416,110 4,260,690 3,769,545 ----------- ---------- ----------- ---------- (LOSS) INCOME BEFORE INCOME TAXES (93,404) 222,197 484,097 867,894 ----------- ---------- ----------- ---------- INCOME TAXES 4,443 6,526 15,926 7,596 ----------- ---------- ----------- ---------- NET (LOSS) INCOME (97,847) 215,671 468,171 860,298 ----------- ---------- ----------- ---------- DIVIDENDS ON PREFERRED STOCK (84,375) -- (253,125) -- ----------- ---------- ----------- ---------- NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS $ (182,222) $ 215,671 $ 215,046 $ 860,298 ----------- ---------- ----------- ---------- WEIGHTED AVERAGE SHARES OUTSTANDING - - Basic 2,035,600 1,745,600 2,035,600 1,745,600 =========== ========== =========== ========== - - Diluted 2,035,600 1,745,600 2,035,600 1,745,600 =========== ========== =========== ========== NET (LOSS) INCOME PER COMMON SHARE - - Basic $ (0.09) $ 0.12 $ 0.11 $ 0.49 =========== ========== =========== ========== - - Diluted $ (0.09) $ 0.12 $ 0.11 $ 0.49 =========== ========== =========== ==========
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, 2003 and 2002
March 31, 2003 March 31, 2002 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 468,171 $ 860,298 ----------- ----------- Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 23,187 49,084 Change in assets and liabilities Accrued interest receivable (268,409) (351,845) Prepaid expenses and other assets (268,347) (812,840) Accrued expenses and other liabilities 2,422 (82,558) Accrued interest payable (131,129) (96,429) ----------- ----------- TOTAL ADJUSTMENTS (642,276) (1,294,588) ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (174,105) (434,290) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Net change in loans receivable, assets acquired in satisfaction of loans and receivables from debtors on sales of assets acquired in satisfaction of loans (1,842,256) 704,063 Purchase of equity securities (521,226) (50,025) Acquisition of furniture, fixtures and leasehold improvements (83,763) (20,960) ----------- ----------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (2,447,245) 633,078 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable, banks, net 2,060,000 750,000 Proceeds from debentures payable, SBA 5,050,000 -- Payments of debentures payable, SBA (3,710,000) -- Dividends paid (789,499) (785,520) ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,610,501 (35,520) ----------- -----------
The accompanying notes are an integral part of these financial statements -4- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Months Ended March 31, 2003 and 2002
March 31, 2003 March 31, 2002 -------------- -------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,849) 163,268 CASH AND CASH EQUIVALENTS - Beginning 774,062 575,229 --------- --------- CASH AND CASH EQUIVALENTS - Ending $ 763,213 $ 738,497 ========= =========
Supplemental noncash financing activity: During the nine months ended March 31, 2003, the Company accrued a preferred stock cash dividend of $84,375 for the quarter ended March 31, 2003. 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" or the "Company") as of March 31, 2003, the related statements of operations for the three and nine months ended March 31, 2003 and 2002, and cash flows for the nine months ended March 31, 2003 and 2002 included in Item 1 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission" or the "SEC"). 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, 2003 are not necessarily indicative of the results of operations for the full year or any other interim period. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2002 as filed with the Commission. Organization and Principal Business Activity Ameritrans, a Delaware corporation, acquired all of the outstanding shares of Elk Associates Funding Corporation ("Elk") on December 16, 1999 in a share for share exchange. Prior to the acquisition, Elk had been operating independently and Ameritrans had no operations. The historical financial statements prior to December 16, 1999 were those of Elk. Elk, a New York corporation, is licensed by the Small Business Administration ("SBA") to operate as a Small Business Investment Company ("SBIC") under the Small Business Investment Act of 1958, as amended. Elk has also registered as an investment company under the Investment Company Act of 1940 to make business loans. Ameritrans is a specialty finance company that through its subsidiary, Elk, makes loans to taxi owners to finance the acquisition and operation of the medallion taxi businesses and related assets, and to other small businesses in the Chicago, New York City, Miami, and Boston markets. Ameritrans is also registered as a Business Development Company under the Investment Company Act of 1940, and makes other loans and investments permitted under the applicable statutes and SEC Regulations pertaining thereto. From inception through April 2002, Ameritrans' only activities have been the operation of Elk. In May 2002, Ameritrans made its first loans to businesses using the proceeds raised from the Company's public offering completed in April 2002. -6- Basis of Consolidation The consolidated financial statements include the accounts of Ameritrans, Elk and EAF Holding Corporation ("EAF"), a wholly owned subsidiary of Elk, collectively referred to as the "Company". All significant inter-company transactions have been eliminated in consolidation. EAF was formed in June 1992 and began operations in December 1993. The purpose of EAF is to own and operate certain real estate assets or other assets acquired in satisfaction of loans by Elk. Ameritrans organized another subsidiary on June 8, 1998, Elk Capital Corporation ("Elk Capital"). Elk Capital may engage in similar lending and investment activities. Since inception, Elk Capital has had no operations or activities. Reclassifications Certain amounts in the prior financial statements have been reclassified for comparative purposes to conform with the presentation in the financial statements for the three and nine months ended March 31, 2003. These reclassifications have no effect on previously reported net income. Income Taxes The Company has elected to be taxed as a Regulated Investment Company under the Internal Revenue Code. A Regulated Investment Company will generally not be taxed at the corporate level to the extent its income is distributed to its stockholders. In order to be taxed as a Regulated Investment Company, the Company must pay at least 90 percent of its net investment company taxable income to its stockholders as well as meet other requirements under the Code. In order to preserve this election for fiscal 2003, the Company intends to make the required distributions to its stockholders in accordance with applicable tax rules. Net Income Per Share Statements of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128") requires presentation of basic and diluted EPS. Basic EPS is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share "EPS" is based on the weighted-average number of shares of Common Stock and Common Stock equivalents outstanding during the period. Common Stock equivalents have been excluded from the weighted average shares for the three and nine months ended March 31, 2003 and 2002 as inclusion is anti- dilutive. At March 31, 2003 the Company had 122,224 options and 300,000 warrants outstanding. -7- Loan Valuations The Company's loans are recorded at fair value. Since no ready market exists for those loans, the fair value is determined in good faith by the Board of Directors. In determining the fair value, the Company and Board of Directors consider factors such as the financial condition of the borrower, the adequacy of the collateral, individual credit risks, historical loss experience and the relationships between current and projected market rates and portfolio rates of interest and maturities. To date, fair value of the loans has been determined to approximate cost less unrealized depreciation and no loans have been recorded above cost. Use of Estimates in the Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are particularly susceptible to change relate to the determination of the fair value of financial instruments. SIGNIFICANT ACCOUNTING POLICIES New Accounting Pronouncements On December 31, 2002, the FASB issued SFAS No.148 ("SFAS 148"), "Accounting for stock-Based Compensation-Transition and Disclosure". SFAS 148 amends SFAS No. 123 ("SFAS 123"), "Accounting for Stock -Based Compensation", to provide an alternative method of transition to SFAS 123's fair value method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB opinion No. 28, "Interim Financial Reporting", to require disclosure in the summary of significant accounting polices of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While the statement does not amend SFAS 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS 123 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS 123, or the intrinsic value method of APB opinion No. 25. The Company will continue to account for stock-based compensation according to APB opinion No. 25. The adoption of SFAS 148 did not have an impact on net income or proforma net income applying the fair value method as the Company did not have stock based compensation for the nine months ended March 31, 2003 and 2002. -8- New Accounting Pronouncements - cont. In November 2002, the FASB issued FASB Interpretation No.45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires a company, at the time it issues a guarantee, to recognize an initial liability for the fair value of obligations assumed under the guarantee and elaborates on existing disclosure requirements related to guarantees and warranties. The requirements did not have a significant impact on the Company's Consolidated Financial statements. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of APB No. 51" ("FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. The provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company does not expect the adoption of FIN 46 to have a significant impact on its results of operations and financial condition. NOTE 2 -- Debentures Payable to SBA At March 31, 2003 and June 30, 2002 debentures payable to the SBA consist of subordinated debentures with interest payable semiannually, as follows:
Current 3/31/03 6/30/02 Effective Principal Principal Issue Date Due Date Interest Rate Amount Amount ---------- -------- ------------- ------ ------ September 1993 September 2003 6.12(1) $1,500,000 $1,500,000 September 1993 September 2003 6.12 2,220,000 2,220,000 September 1994 September 2004 8.20(4) -- 2,690,000 June 1996 June 2006 7.71(5) -- 1,020,000 March 1997 March 2007 7.38(2) 430,000 430,000 July 2002 September 2012 4.67(3) 2,050,000 -- December 2002 March 2013 4.63(3)(6) 3,000,000 -- ---------- ---------- $9,200,000 $7,860,000 ========== ==========
(1) Interest rate was 3.12% from inception through September 1998. (2) Elk is also required to pay an additional annual user fee of 1% on this debenture. (3) Elk is also required to pay an additional annual user fee of 0.87% on this debenture. (4) The loan was prepaid in full during September 2002. -9- NOTE 2 -- Debentures Payable to SBA - cont. (5) The loan was prepaid in full during December 2002. (6) The interim interest rate assigned for the interim period of December 5, 2002 through March 26, 2003 was 1.927%. The fixed interest rate of 4.628% was determined by the SBA's pooling on March 26, 2003. Under the terms of the subordinated debentures, Elk may not repurchase or retire any of its capital stock or make any distributions to its stockholders other than dividends out of retained earnings (as computed in accordance with SBA regulations) without the prior written approval of the SBA. SBA Commitment During January 2002, Elk and the SBA entered into an agreement whereby the SBA committed to reserve debentures in the amount of $12,000,000 to be issued by Elk on or prior to September 30, 2006. A 2.5% leverage fee will be deducted pro rata as the commitment proceeds are drawn down. A $120,000 non-refundable fee was paid by Elk at the time of obtaining the $12,000,000 commitment. During July 2002, a new debenture payable to SBA was drawn from the reserve pool of $12,000,000 in the amount of $2,050,000 with an interim interest rate of 2.351%. The fixed rate of 4.67% was determined on the pooling date of September 25, 2002. In addition to the fixed rate, there is an additional annual SBA user fee of 0.87% per annum that will also be charged making the rate 5.54% before applicable amortization of points and fees. During December 2002, another new debenture payable to SBA was drawn from the reserve pool of $12,000,000 in the amount of $3,000,000 with an interim interest rate of 1.927%. The fixed rate of 4.628% was determined on the pooling date of March 26, 2003. In addition to the fixed interest rate, there is an additional annual SBA user fee of 0.87% per annum that will also be charged making the rate 5.498% before applicable amortization of points and fees. NOTE 3 -- Notes Payable to Banks At March 31, 2003 and June 30, 2002, Elk had loan agreements with three (3) banks for lines of credit aggregating $40,000,000. At March 31, 2003 and June 30, 2002, the Company had $35,780,000 and $33,720,000 respectively, outstanding under these lines. The loans mature through November 2003. The loans bear interest based on Elk's choice of the lower of either the reserve adjusted LIBOR rate plus 150 basis points or the banks' prime rates minus 1/2% plus certain fees. 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. Elk pledged its loans receivable and other assets as collateral for the above lines of credit. Ameritrans also guaranteed and pledged its assets for the Elk bank loans. -10- NOTE 4 -- Commitments and Contingencies Interest Rate Swap On June 11, 2001, Elk entered into an interest rate Swap transaction for $15,000,000 with a bank expiring June 11, 2003. On February 11, 2003, Elk purchased another interest rate Swap contract for $5,000,000 with the same bank expiring February 11, 2005. These Swap transactions were entered into to protect the Company from an upward movement in interest rates relating to outstanding bank debt (see Note 3 for terms and effective interest rates). These Swap transactions call for a fixed rate of 4.95% and 2.06%, respectively, (plus 150 basis points) for Elk and if the floating one month LIBOR rate is below the fixed rate then Elk is obligated to pay the bank for the difference in rates. When the one-month LIBOR rate is above the fixed rate then the bank is obligated to pay Elk for the differences in rates. The effective fixed costs on the outstanding bank debt that was Swapped, including the 150 basis points, is 6.45% and 3.56%, respectively. The fair value of the derivative was not material at March 31, 2003 and June 30, 2002. Loan Commitments At March 31, 2003 and June 30, 2002 the Company had commitments to make loans totaling approximately $3,276,500 and $1,515,297, respectively, at interest rates ranging from 6.0% to 17.5%. Approximately $1,015,500 of the March 31, 2003 commitment is comprised of the refinancing of existing loans in the outstanding portfolio. Employment Agreements During November 2001, the Company entered into an employment agreement with an executive effective as of July 1, 2001, which was subsequently amended by an agreement dated December 31, 2002. The employment agreement provides for a minimum base salary of $255,000, which increases to $296,500 as of July 1, 2003, and thereafter increases yearly, plus an annual bonus. The employment agreement terminates on July 1, 2008 but will be automatically renewed for five (5) years unless either the Company or the executive gives notice of non-renewal. The employment agreement also provides for confidentiality and for non-competition, and non-solicitation during the term of the agreement and for one (1) year thereafter. During November 2001, the Company also entered into a consulting agreement dated July 1, 2001 with the executive discussed above, which was subsequently amended by an agreement dated December 31, 2002. The consulting agreement does not become effective and does not commence unless and until the employment agreement is terminated due to (i) the executive's voluntary resignation from the Company or (ii) a notice of non-renewal of the employment -11- Employment Agreements - cont. agreement from either the Company or the executive. Upon the effectiveness of the consulting agreement the consultant shall be paid at a rate equal to 1/2 the monthly salary in effect at the time the employment agreement is terminated plus any bonus received for that employment year and other benefits. The agreement also provides for confidentiality and non-competition for the term of the agreement, and non-solicitation during the term of the agreement and for one (1) year thereafter. Additionally, during November 2001, the Company entered into employment agreements with five (5) other executives. The Company subsequently amended two of the employment agreements by agreements dated December 31, 2002. The two amended employment agreements are for an initial term which expires on July 1, 2008 but which shall be automatically renewed for five (5) years unless either the Company or the executive gives notice of non-renewal. The remaining three employment agreements, two of which are dated January 1, 2002 and the third as of October 1, 2001, are for terms of five (5) years but are also automatically renewed for five (5) years unless either the Company or the executive gives notice of non-renewal. The five employment agreements provide for minimum salaries of, in the aggregate, $372,800 per annum, which increases to $415,000 per annum as of July 1, 2003, and thereafter increases yearly, plus annual bonuses. The agreements provide for confidentiality and non-competition for the term of the agreements, and non-solicitation during the term of the agreements and for one (1) year thereafter. NOTE 5 -- Other Matters Quarterly Dividend The Company's Board of Directors declared a dividend of $0.28125 per share, or an aggregate of $84,375, on September 20, 2002 on the Company's 9 3/8% cumulative participating redeemable Preferred Stock (the "Participating Preferred Stock") for the period July 1, 2002 through September 30, 2002. The dividend was paid on October 7, 2002 to all holders of the Participating Preferred Stock of record as of September 30, 2002. The Company's Board of Directors declared a dividend of $0.28125 per share, or an aggregate of $84,375, on December 23, 2002 on the Company's Participating Preferred Stock for the period October 1, 2002 through December 31, 2002. The dividend was paid on January 28, 2003 to all holders of the Participating Preferred Stock of record as of December 31, 2002. The Company's Board of Directors declared a dividend of $0.28125 per share, or an aggregate of $84,375, on March 21, 2003 on the Company's Participating Preferred Stock for the period January 1, 2003 through March 31, 2003. The dividend was paid on April 10, 2003 to all holders of the Participating Preferred Stock of record as of March 31, 2003. -12- Quarterly Dividend - cont. On September 26, 2002, the Company's Board of Directors declared a dividend of $0.06 per share of Common Stock for the period April 1, 2002 through June 30, 2002, and a dividend based on estimated earnings for the period July 1, 2002 through September 30, 2002 of $0.11 per share of Common Stock for an aggregate of $0.17 per share or $347,752. The dividend was paid on October 16, 2002 to stockholders of record as of October 7, 2002. On January 10, 2003, the Company's Board of Directors declared a dividend of $0.10 per share of Common Stock, or an aggregate of $204,560, for the period October 1, 2002 through December 31, 2002. The dividend was paid on January 28, 2003 to stockholders of record as of January 20, 2003. The Company's Board of Directors did not declare a dividend on the Common Stock for the period January 1, 2003 through March 31, 2003 in view of the Company's reported loss for the quarter. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in this section should be used in conjunction with the consolidated Financial Statements and Notes therewith appearing in this report Form 10-Q and the Company's Annual Report on Form 10-K for the year ended June 30, 2002. 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. Both Ameritrans and Elk are also registered as a Business Development Company under the Investment Company Act of 1940. Elk primarily makes loans and investments to persons who qualify under SBA regulation as socially or economically disadvantaged. Elk also makes loans and investments to persons who qualify under SBA regulations as non-disadvantaged. Elk's primary lending activity is to originate and service loans collateralized by Chicago, New York City, Boston, and Miami Taxicab Medallions. Elk also makes loans and investments in other diversified businesses. At March 31, 2003, 75.75% of Elk's portfolio was invested in loans secured by taxi medallions and 24.25% 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 the Company's public offering completed in April 2002. -13- Results of Operations for the Nine Months Ended March 31, 2003 and 2002 Total Investment Income The Company's investment income for the nine months ended March 31, 2003 increased $107,348 or 2.3% as compared with the nine months ended March 31, 2002. This increase was mainly due to the Backup Services Fee the Company received ($22,500) as a result of executing an agreement with Medallion Financial Corp and Merrill Lynch to be a standby backup loan servicing agent, combined with income earned by Ameritrans ($99,772) on investments made from the proceeds of the Company's public offering. As a back-up servicer, the Company will earn an annual standby fee. If the agreement is activated by Merrill Lynch, the Company will become the primary servicer which will create an additional revenue source. There can be no assurances however that this agreement will be activated by Merrill Lynch. Operating Expenses Operating expenses increased $286,388 for the nine month period ended March 31, 2003 when compared with the similar period ended March 31, 2002. This increase was due to an increase in payroll costs of $99,362, legal fees of $52,152, foreclosure expenses of $281,838 and other administrative expenses of $248,032, offset by a decrease in interest costs of $403,171, which reflects lower interest charged on the Company's bank debt combined with the refinancing of its SBA debentures. The foreclosure expenses are incurred by the Company as it satisfies outstanding balances incurred by the default borrowers on the medallions with the City of Chicago so that the Company can repossess and resell the medallions. Write off and depreciation of interest and loans receivable and losses on assets acquired for the nine month period ended March 31, 2003 increased $204,757 when compared with the nine months ended March 31, 2002. As a result of the losses sustained by the Company on foreclosure sales of Chicago taxi medallions, the Company at June 30, 2002 instituted an accounting policy that charged off all losses on the resale of each individual medallion sold, as sales were completed, but maintained the Company's legal claims against the borrowers and guarantors of the loans for the remaining amounts they owed to the Company. The Company estimated it would recover ten percent (10%) of the value of these legal claims through collection proceedings. The Company has engaged counsel in Chicago to actively pursue these claims. The carrying value of these amounts were $ 93,728 and $ 131,773 at June 30, 2002 and March 31, 2003, respectively, and are recorded as a miscellaneous receivable. The final amount recorded at March 31, 2003 reflects a change in management's estimate of the amount collectable to be eight percent (8%) of the value of the legal claims, and further reflects a discount of the eight percent (8%) estimated to be collectible by a present value factor of 5.25% (the Company's cost of funds) over the estimated time period of collection which management expects to be three (3) years. The Company intends to review these estimates from time to time and to make appropriate adjustments based upon actual collection experience. The increase in write off and depreciation of interest and loans receivable is primarily due to the increase in Chicago loan portfolio delinquencies and defaults, which is attributed to the economic slowdown and the effects of September 11, 2001 on the Chicago taxi industry. Activities in connection with the Chicago operations are as follows: a) $50,018 of charge off of principal due to losses on 14 of the 28 completed Chicago medallion foreclosures that occurred in the nine months ended March 31, 2003, b) $189,362 of accrued interest on the completed Chicago medallion foreclosures was written off and, c) the Company did not accrue an additional $40,817 of interest on certain foreclosed Chicago medallion loans. In addition, the Company increased its unrealized depreciation on interest receivable for potential losses on the remaining Chicago taxi medallion loans that were in default by an additional net amount of $192,728 for the nine months ended March 31, 2003. As mentioned above, the foreclosure expenses incurred by the Company as it satisfies outstanding balances incurred by the default borrowers on the medallions with the City of Chicago were $281,838 for the nine months ended March 31, 2003. This expense primarily consisted of back taxes, interest and penalties owed to the City of Chicago Department of Revenue by defaulted medallion owners which was required to be paid as a condition of completing the medallion foreclosures sales and transfer to new purchasers. -14- Results of Operations for the Three Months Ended March 31, 2003 and 2002 Total Investment Income The Company's investment income for the three months ended March 31, 2003 decreased to $1,547,685 from $1,638,307, or 5.5%, when compared to the three month period ended March 31, 2002. This is mainly due to income earned by Ameritrans of $34,699 on investments made from the proceeds of the Company's public offering completed in April 2002, offset by the rise in non-accrual in Chicago loans. Operating Expenses Operating expenses increased $122,231 for the three month period ended March 31, 2003 when compared with the quarter ended March 31, 2002. This increase was due primarily to an increase in foreclosure expenses of $161,667 and other administrative expenses of $55,965, offset by a decrease in interest costs of $97,608. Write off and depreciation of interest and loans receivable and losses on assets acquired for the three month period ended March 31, 2003 increased $102,748 when compared with the three months ended March 31, 2002. Balance Sheet and Reserves Total assets increased $2,949,970 as of March 31, 2003 when compared with total assets as of June 30, 2002. This increase was partly due to cash generated by Elk's successful sales to the SBA of debentures in the amount of $2,050,000 and $3,000,000. Elk and the SBA entered into an agreement in January 2002 where the SBA committed to reserve debentures in the amount of $12,000,000 to be issued by Elk prior to September 30, 2006. In July 2002 a new debenture payable to the SBA for $2,050,000 was drawn from the reserved pool of $12,000,000. In September 2002, Elk paid off a SBA debenture in the amount of $2,690,000 in order to reduce costs. In December 2002, Elk paid off an additional SBA debenture in the amount of $1,020,000 and also drew a new debenture in the amount of $3,000,000. In addition, Elk drew down an additional $2,060,000 on its bank borrowings in order to finance expansion. On a consolidated basis, the Company increased its loans receivable by a net of $1,944,163 between June 30, 2002 and March 31, 2003. During this nine month period, the Company also increased its receivable from debtors in satisfaction of loans by $63,987 and its equity investments by $521,236. Liquidity At March 31, 2003, 80% of Elk's indebtedness was represented by indebtedness to its banks and 20% by the debentures issued to the SBA with fixed interest rates ranging from 4.63% to 7.38% -15- before annual user fees which range from 0.87% to 1% and before amortization of points and fees. Elk currently may borrow up to $40,000,000 under its existing lines of credit, subject to the limitations imposed by its borrowing base agreement with its banks and the SBA, the statutory and regulatory limitations imposed by the SBA and the availability of funds. Our sources of liquidity are credit lines with banks, long-term SBA debentures that are issued to or guaranteed by the SBA, loans receivable amortization and prepayments. Prepayments on loans receivable are influenced significantly by general interest rates, economic conditions and competition. As a RIC, both Elk and Ameritrans distribute at least 90% of their investment company taxable income. Consequently, we primarily rely upon external sources of funds to finance growth. In order to provide the funds necessary for our expansion strategy, we expect to raise additional capital and to incur, from time to time, additional bank indebtedness and (if deemed necessary by management) to obtain SBA loans. There can be no assurances that such additional financing will be available on acceptable terms. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Pursuant to the general instructions to Rule 305 of Regulation S-K, the qualitative and quantitative disclosures called for by this Item 3 and by Rule 305 of Regulation S-K are inapplicable to the Company at this time. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Based on their evaluation of our disclosure controls and procedures conducted within 90 days of the date of filing this report on Form 10-Q, our Chief Executive Officer and the Chief Financial Officer has concluded that our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934) are effective. (b) Changes in Internal Controls There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. -16- PART II. OTHER INFORMATION ITEM 6 -- Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Promissory Note dated March 3, 2003 between Elk and Bank Leumi and Letter Agreement dated March 11, 2003 between the aforementioned parties. 10.2 Letter Agreement renewing line of credit for Elk with IDB Bank dated April 30, 2003. 99.1 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 There were no reports filed on Form 8-K for the period ending March 31, 2003. AMERITRANS CAPITAL CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERITRANS CAPITAL CORPORATION Date: May 15, 2003 By: /s/ Gary C. Granoff --------------------------------- Gary C. Granoff Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer) -17- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 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 for the Ameritrans Capital Corporation; 2. Based on my knowledge, this quarterly 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 quarterly report. 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operation, and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly 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 this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (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 weaknesses in internal controls; and -18- (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. 6. The registrant's other certifying officers and I have indicated in this quarterly 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 our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Gary C. Granoff - ------------------- Gary C. Granoff President, Chief Executive Officer, and Chief Financial Officer May 15, 2003 -19- EX-10.1 4 d55533_ex10-1.txt PROMISSORY NOTE Exhibit 10.1 Leumi March 11, 2003 Elk Associates Funding Corporation ("Borrower") 747 Third Avenue, 4th Floor New York, New York 10017 Attn: Mr. Gary Granoff, President Dear Mr. Granoff: Reference is made to promissory note dated March 03, 2003 in the principal amount of $8,000,000. You have agreed that for good and valuable consideration including but not limited to the extension and increase of credit accommodations to Borrower, in the amount of $8,000,000, that letter agreement dated January 20, 1998 shall continue to be in full force and effect with respect to credit accommodations now or in the future outstanding to Borrower. You have agreed that the first paragraph of such letter is modified to provide as follows: "In order to induce you to make and/or continue loans for the account of the undersigned pursuant to Promissory Note (Grid) dated March 03, 2003, as such note is hereafter modified, extended, renewed or replaced with other notes, the Borrower will, and will cause each affiliate and subsidiary (to the extent applicable) to:" Please confirm your agreement to the foregoing by signing and returning a copy of this letter to the undersigned. Very truly yours, BANK LEUMI USA By: /s/ Iris Schechter -------------------------- Iris Schechter, Vice President Consented and Agreed to: ELK ASSOCIATES FUNDING CORPORATION By: /s/ Gary Granoff ----------------------- Gary Granoff, President By: /s/ Silvia M. Mullens ---------------------------------- Silvia M. Mullens, Vice President "THIS NOTE SUPERSEDES AND REPLACES THAT CERTAIN PROMISSORY NOTE (GRID) DATED JANUARY 3, 2003 IN THE ORIGINAL PRINCIPAL AMOUNT OF $8,000,000.00." PROMISSORY NOTE (GRID) New York, N.Y. MARCH 3, 2003 $8,000,000 For Value Received, ELK ASSOCIATES FUNDING CORP. promises to pay to the order of BANK LEUMI USA (the "Bank"), at its offices at 579 Fifth Avenue, New York, New York, the principal sum of Eight Million Dollars ("Maximum Principal Amount") or, if less, the aggregate unpaid principal sum of all loans made by the Bank, in its sole discretion, to the maker of this Note from time to time. The principal sum of each such loan shall be payable November 03, 2003. Within the limits of the Maximum Principal Amount, the maker may borrow, prepay, and reborrow in the manner provided herein. Each loan shall bear interest (from the date of such loan), at the option of the maker, at a rate per annum which shall be equal to (a) the rate of interest designated by the Bank, and in effect from time to time, as its "Reference Rate" minus 1/2% per annum, adjusted when said Reference Rate changes (the maker acknowledges that the Reference Rate may not necessarily represent the lowest rate of interest charged by the Bank to customers) or (b) 1 1/2% per annum above the Libor Rate (Reserve Adjusted)* for a one, two or three month term, as elected by the maker and calculated by the Bank, in the manner hereinafter provided, but in no event in excess of the maximum rate permitted by applicable law; provided, that in the event the Bank shall have determined that by reason of circumstances affecting the Libor Rate (Reserve Adjusted) adequate and reasonable means do not exist for ascertaining the Libor Rate (Reserve Adjusted) for any Interest Period, the applicable rate of interest during such Interest Period shall be equal to its Reference Rate minus 1/2% per annum adjusted when said Reference Rate changes, but in no event in excess of the maximum rate permitted by law; further provided that if, at the end of any Interest Period, the maker has failed to timely notify the Bank of its election of the choice of interest rate for or length of the next Interest Period, then the interest rate in effect thereafter shall be at the Libor Rate (Reserve Adjusted) plus 1 1/2% per annum for an Interest Period the length of which shall be the same length as the immediately preceding Interest Period unless such Interest Period would end after the stated maturity date of this Note, in which case the Interest Period shall be of a duration equal to the next longest Interest Period which would end prior to such scheduled maturity date, provided further that no Libor Rate (Reserve Adjusted)-based loan shall be made less than one month before the stated maturity date of this Note, or after the occurrence and continuance of an Event of Default or an event which, upon notice, passage of time or both would constitute an Event of Default. - ---------- * "Libor Rate" means, relative to any Interest Period (hereinafter defined) for loans made pursuant to this Note and which bear interest at the "Libor Rate (Reserve Adjusted)", the rate of interest per annum determined by the Bank to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the rates of interest per annum at which dollar deposits in the approximate amount of the amount of the loan to be made or continued hereunder by the Bank and having a maturity comparable to such Interest Period would be offered to the Bank in the London Interbank market at its request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. "Libor Reserve Percentage" means, relative to any Interest Period for loans hereunder, the percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to the Bank) under the regulations issued from time to time by the Federal Reserve System Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as a "Eurocurrency Liabilities" in Regulation D of the Federal Reserve System Board). "Libor Rate (Reserve Adjusted)" means, relative to any loan to be made or continued hereunder for any Interest Period, the rate of interest per annum (rounded upwards to the next 1/16th of 1%) determined by the Bank as follows: Libor Rate Libor Rate = --------------------------------- (Reserve Adjusted) 1.00 - Libor Reserve Percentage Interest hereunder shall be payable on the last day of each Interest Period and at maturity (whether by acceleration or otherwise). The term "Interest Period" as used in this Note shall mean a period of one, two or three month(s), as elected by the maker by written or facsimile notice to the Bank given not later than 12:00 noon three Business Days prior to the commencement of an Interest Period. No Interest Period shall extend beyond the stated maturity date of this Note. The initial Interest Period for this Note shall begin on the day of the initial draw down under the Note, and each subsequent Interest Period shall begin on the last day of the immediately preceding Interest Period. The Bank shall give notice to the maker of the interest rate determined for each Interest Period as provided herein, and such notice shall be conclusive and binding upon the maker for all purposes absent manifest error. The maker shall pay to the Bank to compensate it for any loss, cost or expense that the Bank determines is attributable to any prepayment of a loan made by the Bank to the maker using the Libor Rate (Reserve Adjusted). Such compensation shall include an amount equal to the excess (if any) of (i) the amount of interest that otherwise would have accrued on the principal amount so prepaid for the period from the date of such prepayment to the last day of the then current Interest Period for such loan at the applicable rate of interest for such loan provided herein over (ii) the amount of interest that otherwise would have accrued to such principal amount at a rate per annum equal to the interest component of the amount the Bank would have bid in The London Interbank market for dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by the Bank). The term "Business Day" shall mean any day of the year on which the Bank is open for business (as required or permitted by law or otherwise) and on which dealings in the U.S. dollar deposits are carried on in London, England. If any law, treaty, rule, regulation or determination of a court or governmental authority or any change therein or in the interpretation or application thereof (each, a "Change in Law") shall make it unlawful for the Bank to make Libor Rate (Reserve Adjusted)-based loans, or to maintain interest rates based on Libor, then in the former event, any obligation of the Bank contained herein or in any agreement of the Bank to make available such unlawful Libor Rate (Reserve Adjusted)-based loans shall immediately be cancelled, and in the latter event, any such unlawful Libor Rate (Reserve Adjusted)-based loans then outstanding shall be converted, at the Bank's option, so that interest on the outstanding principal balance subject hereto is determined in relation to the Reference Rate as hereinabove provided; provided however, that if any such Change in Law shall permit any Libor Rate (Reserve Adjusted)-based loans to remain in effect until the expiration of the Interest Period applicable thereto, then such permitted Libor Rate (Reserve Adjusted)-based loans shall continue in effect until the expiration of such Interest Period. Upon the occurrence of any of the foregoing events, maker shall pay to the Bank immediately upon demand such amounts as may be necessary to compensate the Bank for any fines, fees, charges, penalties or other costs incurred or payable by the Bank as a result thereof and which are attributable to any Libor Rate (Reserve Adjusted) options made available to maker hereunder, and any reasonable allocation made by the Bank among its operations shall be conclusive and binding upon maker. If any Change in Law or compliance by the Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority shall: (A) subject the Bank to any tax, duty or other charge with respect to any Libor Rate (Reserve Adjusted) options, or change the basis of taxation of payments to the Bank of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of the Bank); or (B) impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, or any other acquisition of funds by any office of the Bank; or (C) impose on the Bank any other condition; and the result of any of the foregoing is to increase the cost to the Bank of making, renewing or maintaining any Libor Rate (Reserve Adjusted)-based loan hereunder and/or to reduce any amount receivable by the Bank in connection therewith, then in any such case, maker shall pay to the Bank immediately upon demand such amounts as may be necessary to compensate the Bank for any additional costs incurred by the Bank and/or reductions received by the Bank which are attributable to such Libor Rate (Reserve Adjusted)-based loan. In determining which costs incurred by the Bank and/or reductions in amounts received by the Bank -2- are attributable to any Libor Rate (Reserve Adjusted)-based loan made to maker hereunder, any reasonable allocation made by the Bank among its operations shall be conclusive and binding upon maker. The Bank is hereby authorized to enter on the schedule attached hereto the amount of each loan and each payment of principal thereon, without any further authorization on the part of the maker or any endorser or guarantor of this Note, but the Bank's failure to make such entry shall not limit or otherwise affect the obligations of the maker or any endorser or guarantor of this Note. In the event that any Liabilities (as hereinafter defined) of maker to the Bank are due at any time that the Bank receives a payment from maker on account of this Note or any such other Liabilities of maker, the Bank may apply such payments to amounts due under this Note or any such other Liabilities in such manner as the Bank, in its discretion, elects, regardless of any instructions from maker to the contrary. The maker and each endorser and guarantor of this Note acknowledge and agree that the use of this form of Note is for their convenience, and there is no obligation on the part of the Bank to make loans to the maker whatsoever. Interest shall be computed on the basis of a 360-day year. Each maker or endorser authorizes (but shall not require) the Bank to debit any account maintained by the maker or endorser with the Bank, at any date on which the payment of principal or of interest on any of the Liabilities is due, in an amount equal to any unpaid portion of such payment. If the time for payment of principal of or interest on any of the Liabilities or any other money payable hereunder or with respect to any of the Liabilities becomes due on a day on which the Bank's offices are closed (as required or permitted by law or otherwise), such payment shall be made on the next succeeding business day, and such extension shall be included in computing interest in connection with such payment. All payments by any maker or endorser of this Note on account of principal, interest or fees hereunder shall be made in lawful money of the United States of America, in immediately available funds. All Property (as hereinafter defined) held by the Bank shall be subject to a security interest in favor of the Bank or holder hereof as security for any and all Liabilities. The term "Property" shall mean the balance of every deposit account of the maker with the Bank or any of the Bank's nominees or agents and all other obligations of the Bank or any of its nominees or agents to the maker, whether now existing or hereafter arising, and all other personal property of the maker (including without limitation all money, accounts, general intangibles, goods, instruments, documents and chattel paper) which, or evidence of which, are now or at any time in the future shall come into the possession or under the control of or be in transit to the Bank or any of its nominees or agents for any purpose, whether or not accepted for the purposes for which it was delivered. The term "Liabilities" shall mean the indebtedness evidenced by this Note and all other indebtedness, liabilities and obligations of any kind of the maker (or any partnership or other group of which the maker is a member) to (a) the Bank, (b) any group of which the Bank is a member, or (c) any other person if the Bank has a participation or other interest in such indebtedness, liabilities or obligations, whether (i) for the Bank's own account or as agent for others, (ii) acquired directly or indirectly by the Bank from the maker or others, (iii) absolute or contingent, joint or several, secured or unsecured, liquidated or unliquidated, due or not due, contractual or tortious, now existing or hereafter arising, or (iv) incurred by the maker as principal, surety, endorser, guarantor or otherwise, and including without limitation all expenses, including attorneys' fees, incurred by the Bank in connection with any indebtedness, liabilities or obligations or any of the Property (including any sale or other disposition of the Property). Upon the happening, with respect to any maker, endorser or guarantor of this Note or any assets of any such maker, endorser or guarantor, of any of the following events (each an "Event of Default"): death of the maker, endorser or guarantor or any member of the maker, endorser or guarantor (if a partnership); the failure to furnish the Bank with any requested information or failing to permit inspection of books or records by the Bank or any of its agents; the making of any misrepresentation to the Bank in obtaining credit for any of them; dissolution (if a corporation or partnership); the making of a mortgage or pledge; the commencement of a foreclosure proceeding; default in the payment of principal or interest on this Note or in the payment of any other obligation of any said maker, endorser or guarantor held by the Bank or holder hereof or in the performance or observance of any covenant or agreement contained in the instrument evidencing such obligation; default in the payment of principal of or interest on any indebtedness for borrowed money owed to any other person or entity (including any such indebtedness in the nature of a lease) or default -3- in the performance or observance of the terms of any instrument pursuant to which such indebtedness was created or is secured, the effect of which default is to cause or permit any hoder of any such indebtedness to cause the same to become due prior to its stated maturity (and whether or not such default is waived by the holder thereof); a change in the financial condition or affairs of any of them which in the opinion of the Bank or subsequent holder hereof materially reduces his, their or its ability to pay all of his their or its obligations; the suspension of business; the making of an assignment for the benefit of creditors, or appointment of a trustee, receiver or liquidator for the maker, endorser or guarantor or for any of his, its or their property, or the commencement of any proceedings by the maker, endorser or guarantor under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute (including, if the maker, endorser or guarantor is a partnership, its dissolution pursuant to any agreement or statute), or the commencement of any such proceedings without the consent of the maker, endorser or guarantor, as the case may be, and such proceedings shall continue undischarged for a period of 30 days; the sending of notice of an intended bulk sale; the entry of judgments or any attachment, levy or execution against any of his, their or its properties shall not be released, discharged dismissed, stayed or fully bonded for a period of 30 days or more after its entry, issue or levy, as the case may be; or the issuance of a warrant of distraint or assertion of a lien for unpaid taxes, this Note, if not then due or payable on demand, shall become due and payable immediately without demand or notice and all other debts or obligations of the makers and endorsers hereof to the Bank or holder hereof, whether due or not due and whether direct or contingent and however evidenced, shall, at the option of the Bank or holder hereof, also become due and payable immediately without demand or notice. After this Note becomes due, at stated maturity or on acceleration, any unpaid balance hereof shall bear interest from the date it becomes due until paid at a rate per annum 3% above the rate borne by this Note when it becomes due or, if such rate shall not be lawful with respect to the undersigned, then at the highest lawful rate. The liability of any party to commercial paper held by the Bank or holder hereof, other than the makers and endorsers hereof, shall remain unaffected hereby and such parties shall remain liable thereon in accordance with the original tenor thereof. Each maker and endorser agrees that if an attorney is retained to enforce or collect this Note or any other obligations by reason of non-payment of this Note when due or made due hereunder, a reasonable attorneys' fee shall be paid in addition, which fees shall be computed as follows: 15% of the principal, interest and all other sums due and owing to the payee or holder or the reasonable value of the attorneys' services, whichever is greater. This Note shall be governed by the laws of the State of New York and shall be binding upon the maker and each endorser and the maker's and each endorser's heirs, administrators, successors and assigns. The maker and each endorser hereby irrevocably consent to the jurisdiction of any New York State or Federal court located in New York City over any action or proceeding arising out of any dispute between the maker and each endorser and the Bank, and the maker further irrevocably consents to the service of process in any such action or proceeding by the mailing of a copy of such process to the maker at the address set forth below. In the event of litigation between the Bank and the maker over any matter connected with this Note or resulting from the transactions hereunder, the right to a trial by jury is hereby waived by the Bank and the maker. The maker also waives the right to interpose any set-off or counterclaim of any nature. The Bank or any holder may accept late payments, or partial payments, even though marked "payment in full" or containing words of similar import or other conditions, without waiving any of its rights. No amendment, modification or waiver of any provision of this Note nor consent to any departure by maker therefrom shall be effective, irrespective of any course of dealing, unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The rights and remedies of the Bank provided for hereunder (including but not limited to the right to accelerate Liabilities of maker and to realize on any security for any such Liabilities) are cumulative with the rights and remedies of the Bank available under any other instrument or agreement or under applicable law. The undersigned, if more than one, shall be jointly and severally liable hereunder. ELK ASSOCIATES FUNDING CORPORATION By: /s/ Gary Granoff ------------------------------ Gary Granoff, President -4- By: /s/ Sylvia M. Mullens ------------------------------ Sylvia M. Mullens, Vice President (Address) 747 Third Avenue New York, New York 10017 -5- EX-10.2 5 d55533_ex10-2.txt CREDIT LETTER Exhibit 10.2 IDB Bank April 30, 2003 Mr. Gary Granoff Elk Associates Funding Corp. 747 Third Avenue New York, New York 10017 Dear Gary: We are pleased to confirm that we renewed the 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 October 31, 2003. 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, /s/ Robert J. Fainelli ---------------------- Robert J. Fainelli First Vice President EX-99.1 6 d55533_ex99-1.txt CERTIFICATION Exhibit 99.1 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 nine months ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary C. Granoff, President, Chief Executive Officer, and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 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 15, 2003 -20- -----END PRIVACY-ENHANCED MESSAGE-----