AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INVESTMENTS (continued)
| | | | | | | |
| | | | | | | |
| | | Portfolio Valuation as of June 30, 2009 |
Portfolio Company (1) | Investment
Investment Rate/Maturity | | Principal | | Net Cost | | Value |
| | | | | | | |
Life Insurance Settlement Contracts (11.65%)(5) | | | | | | | |
Vibrant Capital Corp. (J.V. #1) (4) | 7 life insurance policies, aggregate
face value of $30,750,000 | | | | 2,859,489 | | 1,764,081 |
Equity Investments (5.30%) (5) | | | | | | | |
MBS Steeplecrest, Ltd.
Rental Real Estate Limited Partnership | Limited Partnership Interest | | | | - | | - |
MBS Huntwick, Ltd.
Rental Real Estate Limited Partnership | Limited Partnership Interest | | | | - | | - |
MBS Cranbrook Ltd.
Rental Real Estate Limited Partnership | Limited Partnership Interest | | | | - | | - |
MBS Serrano, Ltd.
Rental Real Estate Limited Partnership | Limited Partnership Interest | | | | 50,600 | | - |
MBS Colonnade, Ltd.
Rental Real Estate Limited Partnership | Limited Partnership Interest | | | | 50,000 | | - |
MBS Briar Meadows, Ltd.
Rental Real Estate Limited Partnership | Limited Partnership Interest | | | | - | | - |
MBS Indian Hollow, Ltd.
Rental Real Estate Limited Partnership | Limited Partnership Interest | | | | - | | - |
MBS Sage Creek, Ltd.
Rental Real Estate Limited Partnership | Limited Partnership Interest | | | | 50,000 | | 27,558 |
MBS Walnut Creek, Ltd.
Rental Real Estate Limited Partnership | Limited Partnership Interest | | | | 25,000 | | 7,480 |
MBS Lodge At Stone Oak, Ltd.
Rental Real Estate Limited Partnership | Limited Partnership Interest | | | | 60,000 | | 30,896 |
238 W. 108 Realty LLC (2)
Residential Real Estate Development | 5% LLC Interest | | | | 106,000 | | 11,000 |
Asset Recovery & Management, LLC (3)
Consumer Receivable Collections | 30.0% LLC Interest | | | | 6,000 | | 6,000 |
633 Mead Street, LLC (3)
Real Estate Development | 57.1% LLC Interest | | | | 800 | | 800 |
CMCA, LLC (3)
Consumer Receivable Collections | 30% LLC Interest | | | | 4,000 | | 4,000 |
Soha Terrace II LLC (2)
Real Estate Development | 6% LLC Interest | | | | 700,000 | | 700,000 |
Fusion Telecommunications
Internet Telephony | 69,736 Shares of Common Stock | | | | 367,027 | | 9,066 |
EraGen Biosciences
Analytic Compounds | 17,000 shares of Common Stock | | | | 25,500 | | 5,500 |
| | | | | | | |
| Total equity investments | | | | 1,444,927 | | 802,300 |
| Total investments | | | $ | 28,769,396 | $ | 26,409,468 |
(1) Unless otherwise noted, all investments as collateral for the Notes payable, banks (see Note 6 to the consolidated financial statements).
(2) As defined in the Investment Company Act of 1940, we are an affiliate of this portfolio company because, as of June 30, 2009, we own 5% or more of the portfolio company’s outstanding voting securities.
(3) As defined in the Investment Company Act of 1940, we maintain “control” of this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities.
(4) The Company receives interest at a rate of 12% per annum pursuant to an agreement with another company (see Note 2 to the consolidated financial statements for more details).
(5) Percentage of net assets.
(6) Other small balance loans.
(7) Loan receivable is on non-accrual status and therefore is considered non-income producing.
The accompanying notes are an integral part of these consolidated financial statements.
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AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information at and for the three months and six months ended December 31, 2009 and 2008 are unaudited
1. Organization and Summary of Significant Accounting Policies
Financial Statements
The consolidated statement of assets and liabilities of Ameritrans Capital Corporation (“Ameritrans”, the “Company”, “our”, “us”, or “we”) as of December 31, 2009, and the related consolidated statements of operations, statement of changes in net assets, and cash flows for the three and six month periods ended December 31, 2009 and 2008 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 and the board of directors of the Company (“Management” and “Board of Directors”), the accompanying consolidated financial stat ements include all adjustments (consisting of normal, recurring adjustments) necessary to summarize fairly the Company’s financial position and results of operations. The results of operations for the three and six month periods ended December 31, 2009 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, 2009, as filed with the Commission.
Organization and Principal Business Activity
Ameritrans Capital Corporation is a Delaware closed-end investment company formed in 1998, which, among other activities, makes loans and investments with the goal of generating both current income and capital appreciation. Through our subsidiary, Elk Associates Funding Corporation (“Elk”), we make loans to finance the acquisition and operation of small businesses as permitted by the U.S. Small Business Administration (the “SBA”). Ameritrans also makes loans to and invests in opportunities that Elk has historically been unable to make due to SBA restrictions. Ameritrans makes loans which have primarily been secured by real estate mortgages or, in the case of corporate loans, generally are senior within the capital structure. We also make equity investments which have primarily been in income producing real estate properties, or in real estate construction projects.
Elk was organized primarily to provide long-term loans to businesses eligible for investments by small business investment companies (each an “SBIC”) under the Small Business Investment Act of 1958, as amended (the “1958 Act”). Elk makes loans for financing the purchase or continued ownership of businesses that qualify for funding as small concerns under SBA Regulations.
Both Ameritrans and Elk are registered as business development companies, or “BDCs,” under the Investment Company Act of 1940, as amended (the “1940 Act”). Accordingly, Ameritrans and Elk are subject to the provisions of the 1940 Act governing the operation of BDCs. Both companies are managed by their executive officers under the supervision of their Boards of Directors.
The Company categorizes its investments into five security types: 1) Corporate Loans Receivable; 2) Commercial Loans Receivable; 3) Life Insurance Settlements; 4) Equity Investments; and 5) Medallion Loans Receivable. For a more detailed description of these investment categories please see the Company’s Annual Report on Form 10-K for the year ended June 30, 2009, filed with the Commission by the Company on September 28, 2009 and which is available on the Company’s web site atwww.ameritranscapital.com .
Basis of Consolidation
The consolidated financial statements include the accounts of Ameritrans, Elk Capital Corporation (“ECC”), Elk and Elk’s wholly owned subsidiary, EAF Holding Corporation (“EAF”). All significant inter-company transactions have been eliminated in consolidation.
ECC is a wholly owned subsidiary of Ameritrans, which may engage in lending and investment activities similar to its parent.
EAF began operations in December 1993 and owns and operates certain real estate assets acquired in satisfaction of defaulted loans by Elk debtors. At December 31, 2009 EAF was not operating any assets.
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Investment Valuations
The Company’s loans receivable, net of participations and any unearned discount are considered investment securities under the 1940 Act and are recorded at fair value. As part of fair value methodology, loans are valued at cost adjusted for any unrealized appreciation (depreciation). Since no ready market exists for these loans, the fair value is determined in good faith by management, and approved 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. Foreclosed properties, which represent collateral received from defaulted borrowers, are valued similarly.
Loans are considered “non-performing” once they become ninety (90) days past due as to principal or interest. The value of past due loans are periodically determined in good faith by management, and if, in the judgment of management, the amount is not collectible and the fair value of the collateral is less than the amount due, the value of the loan will be reduced to fair value.
Equity investments (common stock and stock warrants, including certain controlled subsidiary portfolio investments) and investment securities are recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation. Investments for which market quotations are readily available are valued at such quoted amounts. If no public market exists the fair value of investments that have no ready market are determined in good faith by management, and approved by the Board of Directors, based upon assets and revenues of the underlying investee companies as well as general market trends for businesses in the same industry.
The Company records the investment in life insurance policies at the Company’s estimate of their fair value based upon various factors including a discounted cash flow analysis of anticipated life expectancies, future premium payments, and anticipated death benefits. The fair value of the investment in life settlement contracts have no ready market and are determined in good faith by management, and approved by the Board of Directors (see Note 2).
Because of the inherent uncertainty of valuations, the Company’s estimates of the values of the investments may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.
Effective July 1, 2008, the Company adopted Accounting Standard Codification (“ASC”) 820-10 previously Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), which expands the application of fair value accounting for investments (see Note 2).
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, a company must pay out 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 year 2009/2010, the Company intends to make the required distributions to its stockholders, therefore, no provision for federal income taxes has been provided in the accompanying consolidated financial statements.
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 included in “Other administrative expenses” in the consolidated statements of operations in each of the fiscal years presented. The Company’s tax returns for fiscal years ended 2006 through 2009 are subject to examination by federal, state and local income tax authorities.
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 significant change relate to the determination of the fair value of the Company’s investments.
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Earnings (Loss) Per Share
Basic earnings (loss) per share includes no dilution and is computed by dividing current net increase (decrease) in net assets from operations 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 years presented, the effect of common stock equivalents has been excluded from the diluted calculation since the effect would be antidilutive.
Dividends
Dividends and distributions to our common and preferred stockholders are recorded on the record date. The amount to be paid out as a dividend is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment.
On June 30, 2008, the Board approved and adopted a dividend reinvestment plan that provides for reinvestment of distributions in the Company’s Common Stock on behalf of common stockholders, unless a stockholder elects to receive cash. As a result, if the Board authorizes, and the Company declares, a cash dividend, then those stockholders who have not “opted out” of the dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of Common Stock, rather than receiving the cash dividends. As of December 31, 2009, no shares have been purchased under the Plan.
Income Recognition
Interest income, including interest on loans in default, is recorded on an accrual basis and in accordance with loan terms to the extent such amounts are expected to be collected. The Company recognizes interest income on loans classified as non-performing only to the extent that the fair market value of the related collateral exceeds the specific loan balance. Loans that are not fully collateralized and in the process of collection are placed on nonaccrual status when, in the judgment of management, the collectability of interest and principal is doubtful.
Stock Options
The Company adopted ASC 718-10 (previously SFAS No. 123R, “Accounting for Stock-Based Compensation ”) and related interpretations in accounting for its stock option plans effective January 1, 2006, and accordingly, the Company will expense these grants as required. Stock-based employee compensation costs in the form of stock options will be reflected in net increase (decrease) in net assets from operations for grants made including and subsequent to January 1, 2006 only, since there were no unvested options outstanding at December 31, 2005, using the fair values established by usage of the Black-Scholes option pricing model, expensed over the vesting period of the underlying option. Previously, no compensation cost was recognized under these plans, as the Company followed the disclosure-only provisions under guidance at that time.
The Company elected the modified prospective transition method for adopting ASC 718-10. Under this method, the provisions of ASC 718-10 apply to all awards granted or modified after the date of adoption. The compensation cost is then recognized over the vesting period of the options (see Note 9). The Stock Option Plans expired on May 21, 2009. The Company has chosen not to renew the plans.
Financial Instruments
The carrying value of cash and cash equivalents, accrued interest receivable and payable, and other receivables and payables approximates fair value due to the relative short maturities of these financial instruments. The Company’s investments, including loans receivable, life settlement contracts and equity securities, are carried at their estimated fair value. The carrying value of the bank debt is a reasonable estimate of their fair value as the interest rates are variable, based on prevailing market rates. The fair value of the SBA debentures were computed using the discounted amount of future cash flows using the Company’s current incremental borrowing rate for similar types of borrowings (see Note 6).
Presentation of Prior Quarter Data
Certain reclassifications have been made to conform prior quarter data to the current presentation. Although the reclassifications resulted in changes to certain line items in the previously filed financial statements the overall effect of the reclassifications did not impact net assets available.
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2. Investments
The following table shows the Company’s portfolio by security type at December 31, 2009 and June 30, 2009:
1) Represents percentage of total portfolio at fair value
Investments by Industry
Investments by industry consist of the following as of December 31, 2009 and June 30, 2009:
| | | |
| | | |
| Percentage of Portfolio at |
| December 31, 2009 | | June 30, 2009 |
Assisted Living Facilities | - | | 3.4% |
Broadcasting/Telecommunications | 8.0% | | 7.3% |
Commercial Construction | 11.7% | | 11.6% |
Construction and Predevelopment | 7.2% | | 6.5% |
Debt Collection | 2.1% | | 2.0% |
Education | 8.3% | | 3.7% |
Gaming | 5.2% | | 5.2% |
Gasoline Distribution | 2.5% | | 2.4% |
Laundromat | 1.4% | | 1.3% |
Life Insurance Settlement | 3.9% | | 6.7% |
Manufacturing | 16.5% | | 15.5% |
Office Water Systems | 1.8% | | 1.9% |
Printing/Publishing | 5.5% | | 7.3% |
Processing Control Instruments | 4.9% | | 6.6% |
Residential Mortgages | - | | 1.8% |
Restaurant/Food Service | 13.3% | | 9.5% |
Sanitaryware Distributor | 1.5% | | 4.4% |
Supermarkets | 4.1% | | - |
Industries less than 1% | 2.1% | | 2.9% |
TOTAL | 100.0% | | 100.0% |
Loans Receivable
Loans are considered non-performing once they become ninety (90) days past due as to principal or interest. The Company had loans which are considered non-performing in the amount of $4,222,088 and $4,952,769 as of December 31, 2009 and June 30, 2009, respectively. These loans are either fully or substantially collateralized and are in some instances personally guaranteed by the debtor. Included in the total non-performing loans is $3,245,036 and $3,249,070 at December 31, 2009 and June 30, 2009, respectively, which is no longer accruing interest since the loan principal and accrued interest exceed the estimated fair value of the underlining collateral. The following table sets forth certain information regarding performing and non-performing loans as of December 31, 2009 and June 30, 2009:
| | | | |
| | | | |
| | December 31, 2009 | | June 30, 2009 |
Loans receivable | $ | 22,079,305 | $ | 23,843,087 |
Performing loans | | 17,857,217 | | 18,890,318 |
Nonperforming loans | $ | 4,222,088 | $ | 4,952,769 |
Nonperforming loans: | | | | |
Accrual | $ | 977,052 | $ | 1,703,699 |
Nonaccrual | | 3,245,036 | | 3,249,070 |
| $ | 4,222,088 | $ | 4,952,769 |
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The Company has pledged its loans receivable and all other assets of the Company as collateral for its lines of credit (see Note 4).
On October 29, 2008 the Company completed the sale of substantially all of the Company’s taxicab medallion portfolio to Medallion Financial Corp. and Medallion Bank, pursuant to that certain loan portfolio sale and purchase agreement dated as of July 16, 2008, as amended October 17, 2008 and further amended October 20, 2008 (the “Loan Purchase Agreement”). Ameritrans utilized cash on hand and all of the net proceeds from this transaction in the amount of $25,883,820 to fully pay down its existing bank indebtedness. Except for costs in the amount of approximately $340,000, relating to disposal of the assets, there was no gain or loss realized on this transaction as the taxi medallion portfolio was sold at par value. The loan Purchase Agreement was approved by the Company’s shareholders on August 26, 2008.
As of December 31, 2009 the Company has accrued approximately $232,000 in professional fees, in connection with an investment advisory and management agreement related to Corporate Loans, which was approved by the shareholders on December 10, 2009 (the “Advisory Agreement”). The Company anticipates this will be paid upon execution of an amendment to said agreement, providing such additional fees, that will be submitted to shareholders for approval at a meeting of the Company’s shareholders expected to be held in March, 2010. Pursuant to the Advisory Agreement, in future periods, the Company will pay a pro rated annual base fee of 1.50% per annum of the aggregate fair value of Corporate Loans outstanding at the end of each quarter. The Advisory Agreement also provides for an Income Based and Capital Gains fee as described therein.
Pursuant to the Advisory Agreement, Velocity Capital Advisors serve as the non-discretionary investment adviser to the Company with respect to the investment in (A) below investment grade (i) senior loans and notes, and (ii) subordinated notes, and (B) any other debt instruments to which the parties mutually agree ((A) and (B) which are generally collectively referred to as “Corporate Loans) and (C) incidental equity investments received in connection with the investment in the Debt Portfolio (“Incidental Equity”) (collectively, the “Velocity Assets”). All investments in Corporate Loans are subject to the supervision of the Board and the review and recommendation of the Company’s VCA investment committee.
At such time as the Velocity Assets exceed $75 million (and unless the Adviser has otherwise terminated the exclusivity obligations of the Company in accordance with the Advisory Agreement), the Adviser’s services under the Advisory Agreement will be exclusive with respect to the Velocity Assets and assets similar to the Velocity Assets. The Advisory Agreement may be terminated at any time, without payment of a penalty, upon 60 days’ written notice, by the vote of stockholders holding a majority of the outstanding voting securities of the Company, or by the vote of the Company’s directors or by the Adviser. The Advisory Agreement will automatically terminate in the event of its assignment by the Adviser.
Life Settlement Contracts
In September 2006, the Company entered into an agreement with Vibrant Capital Corporation (“Vibrant”), (the “Vibrant Agreement”), an unaffiliated entity, to purchase life insurance policies owned by unrelated individuals. Under the terms of the Vibrant Agreement, the Company was designated as nominee to maintain possession of the policies and process transactions related to such policies until the policies were subsequently sold or a death benefit payment was made. Pursuant to the Vibrant Agreement, the Company was entitled to receive from Vibrant a twelve percent (12%) annual return on the amount of funds paid by the Company and outstanding on a monthly, prorated basis. Proceeds from the sale of the policies were to be distributed, net of direct expenses, as defined in the Vibrant Agreement.
In April, 2009, the Company learned that the manager of Vibrant had been charged with various violations of securities laws by the SEC. The SEC obtained a court order freezing the assets of the manager and other entities with which he was involved, including Vibrant (the “Receivership Estate”). As of April 14, 2009, a trustee and a receiver (the “Receiver”) were appointed to operate Vibrant. Throughout calendar 2009, the Company worked with the Receiver and investigated potential opportunities to maximize the value of the Company’s interest in the life insurance contracts.
Initially, the Company made certain contributions to the payment of the premiums in order to keep the policies in full force and effect and preserve their value. Thereafter, utilizing a line of credit secured by certain assets of the Receivership Estate, the Receiver advanced premiums due under certain policies to keep the policies in full force and effect. The Receiver engaged an independent specialist firm to service and market for sale all of the policies in the Receivership Estate.. In October 2009, the Receiver indicated it no longer had the funds available to pay future premiums and that it wanted to engage in a sale to one of two buyers that had indicated an interest in purchasing the Receivership Estate. Subsequently, both buyers determined not to complete a transaction. Following discussions with the Receiver, the Company negotiated an agreement (the “Purchase Agreement”), which among other items, gran ted the Company the right to purchase the policies, subject to certain terms and conditions and court approval.
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Pursuant to the Purchase Agreement:
1) The Company acquired all of the rights to and title and interest in, ten (10) life insurance policies (7 of which had been previously included in the Joint Venture), with an aggregate death benefit of $28,159,809, including one policy that had lapsed but could be possibly reinstated on appeal to the insurer.
2) The Company agreed to pay the Receiver $30,000 to cover certain expenses;
3) The Company agreed to pay the Receivership Estate 20% of all recoveries until such time as the Company has recouped approximately $2.1 million plus the amount of any premiums paid following the date of the Purchase Agreement;
4) The Company agreed to pay the Receivership Estate 50% of all recoveries above the amounts described in Item 3 above;
5) The Company agreed with the Receiver to enter into a settlement agreement with respect to the division of the proceeds from the rescission of one of the original Joint Venture policies, whereby the Company would receive $109,857;
6) The Company agreed to the cancellation of certain claims the Company had against the Receivership Estate for premiums advanced since April 2, 2009;
7) The Company and the Receivership Estate agreed that the Joint Venture Agreement would be cancelled, terminated and have no further effect; and
8) Despite the percentage interest of the Receiver in any recovery, the Company reserved the right, in its sole discretion, to continue to fund premium payments or let any or all of the policies lapse.
The Purchase Agreement was dated December 18, 2009 and approved by the court on January 8, 2010.
Subsequent to court approval, the Company learned that certain of the policies had lapsed due to non-payment of premiums. As of December 31, 2009, the Company owned a total of five (5) policies with an aggregate death benefit of $20,909,809 which remained in full force and effect.
As of December 31, 2009, the fair value of the policies owned by the Company was $931,297, which represents the estimated fair value for the five (5) life insurance policies with an aggregate face value of $20,909,809. The Company’s cost on these policies to date is $2,543,055, including insurance premiums of $63,500 which were paid in the quarter ended December 31, 2009. Premiums on the policies must be paid until the policies are sold in order to keep the policies in full force. As of December 31, 2009, Vibrant had paid the premiums on the policies in the aggregate amount of $513,903. The Company no longer expects Vibrant to make any further premium payments and pursuant to the Purchase Agreement the Company has no duty to remit, any premium payments.
The Company is entitled to sell the policies at any time, in its sole discretion and has no obligation to pay future premiums on the various policies. The approximate future minimum premiums due for each of the next five (5) years and in the aggregate thereafter, based on current life expectancy of the insureds, are as follows:
| | |
| | |
Year Ending
June 30 | | Policy
Premiums |
| | |
2010 (six months) | $ | 411,425 |
2011 | | 822,850 |
2012 | | 822,850 |
2013 | | 822,850 |
2014 | | 822,850 |
thereafter | | 2,527,300 |
| $ | 6,230,125 |
Based upon the current uncertain state of the life settlement market, the lack of liquidity at this time in this market due to the difficult credit conditions and the overall economy, the fact that these policies may have diminished value due to having been associated with Vibrant, and the Company’s previously stated decision to exit the life settlement area, the Company has adjusted the fair value of these policies to reflect the current anticipated recovery based on estimated actuarial values that take into account the various factors discussed above. This is an estimate based upon the information currently available. The Company continues to pursue alternatives that could allow for a higher recovery.
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Fair Value of Investments
Effective July 1, 2008, the Company adopted ASC 820-10 (previously SFAS 157, Fair Value Measurements), which expands application of fair value accounting. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure of fair value measurements. ASC 820-10 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Company to assume that the portfolio investment is sold in a principal market to market participants, or in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820 - -10, the Company has considered its principal market as the market in which the Company exits its portfolio investments with the greatest volume and level of activity. ASC 820-10 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below:
·
Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
·
Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
·
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
In addition to using the above inputs in investment valuations, we continue to employ the valuation policy approved by our board of directors that is consistent with ASC 820-10 (see Note 1). Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. Our valuation policy considers the fact that because there is not a readily available market value for most of the investments in our portfolio, the fair value of the investments must typically be determined using unobservable inputs.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize significantly less than the value at which we have previously recorded it.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned.
The following table presents fair value measurements of investments as of December 31, 2009:
| | | | | | | | |
| | | | | | | | |
| | | | Fair Value Measurements Using |
| | Total | | Level 1 | | Level 2 | | Level 3 |
Investments | $ | 23,812,902 | $ | 9,066 | $ | - | $ | 23,803,836 |
The following table’s present changes in investments that use Level 3 inputs for the six months ended December 31, 2009:
| | |
| | |
| | Six months ended December 31, 2009 |
Balance as of June 30, 2009 | $ | 26,400,402 |
Net unrealized gains (losses) | | (1,156,083) |
Net purchases, sales or redemptions | | (1,440,483) |
Net transfers in and/or out of Level 3 | | - |
Balance as of December 31, 2009 | $ | 23,803,836 |
As of December 31, 2009, the net unrealized loss on the investments that use Level 3 inputs was $3,158,050.
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3.
Debentures Payable to SBA
At December 31, 2009 and June 30, 2009 debentures payable to the SBA consisted of subordinated debentures with interest payable semiannually, as follows:
| | | | | | | | | | |
| | | | | | | | | | |
Issue Date | | Due Date | | % Interest Rate | | December 31, 2009 | | June 30, 2009 | | Annual Amount of Interest and User Fees |
| | | | | | | | | | |
July 2002 | | September 2012 | | 4.67(1) | $ | 2,050,000 | $ | 2,050,000 | $ | 113,488 |
December 2002 | | March 2013 | | 4.63(1) | | 3,000,000 | | 3,000,000 | | 164,880 |
September 2003 | | March 2014 | | 4.12(1) | | 5,000,000 | | 5,000,000 | | 249,300 |
February 2004 | | March 2014 | | 4.12(1) | | 1,950,000 | | 1,950,000 | | 97,227 |
December 2009 | | March 2020 | | (2) | | 9,175,000 | | - | | - |
| | | | | $ | 21,175,000 | $ | 12,000,000 | $ | 624,895 |
(1) Elk is also required to pay an additional annual user fee of 0.866% on these debentures.
(2) Interest rate to be established on March 23, 2010. The long term ten (10) year interest rate will be determined at pooling based upon the then current ten (10) year rate for United States Treasury Notes, as adjusted for certain fees and other items. The interim interest rate is 0.87% per annum.
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.
Pursuant to SBA’s issuance of leverage in the form of debentures in the aggregate of $9,175,000, Elk submitted an application to draw the full amount of the awarded fiscal year 2009 commitment. SBA approved the leverage request and on December 2, 2009, Elk received the disbursement of $9,175,000 from the long term guaranteed debenture, and paid fees totaling $314,243 in accordance with SBA regulation. The net proceeds of the draw were $8,952,506.
4. Notes Payable
Banks
At December 31, 2009, the Company had credit lines with two (2) banks for lines of credit aggregating $370,000 of which $370,000 was outstanding. The weighted average interest rate on the outstanding bank debt at December 31, 2009 was approximately 4.31% which represents an interest rate of 1.0% above the prime rate of interest designated by each bank. The credit line in the amount of $120,000 was extended to July 6, 2010. The credit line of $250,000 was increased to $352,000 and has been extended to June 30, 2010. Both lines extend under the same terms and conditions.
Pursuant to the terms of the current agreements the Company is required to comply with certain covenants and conditions, as defined in the agreements. The Company has pledged its loans receivable and all other assets as collateral for the above lines of credit. Pursuant to the SBA agreement and an “intercreditor agreement” among the lending banks and the SBA, the SBA agreed to subordinate the SBA Debentures outstanding in favor of the banks. In accordance with the loan documentation with the SBA and the banks, the Company must also comply with maintaining overall debt levels within a formula based upon the performance of its loan portfolio according to a “borrowing base” which is submitted for review to the SBA and the banks for periodic review. The Company was in compliance with the terms and conditions of the “borrowing base” at December 31, 2009.
Other
On December 22, 2009, the Company issued $2,025,000 aggregate principal amount of its 8.75% notes due December 2011 (the “Notes”) in a private offering. The Notes bear interest at a rate of 8.75%, payable quarterly, but the Company has the option to extend the Notes until December 2012 at a rate of 5.5% , plus the then-current prime rate. The Notes are redeemable by the Company at any time upon not less than 30 days prior notice. A member of the Company’s Board of Directors, and certain affiliated entities acquired $1,375,000 of the Notes in the offering.
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5. Dividends to Stockholders
The following table sets forth the dividends declared by the Company on our Common Stock and Preferred Stock for the six months ended December 31, 2009, and 2008:
The Company has not declared a preferred stock dividend for the quarters ended June 30, 2009, September 30, 2009, or December 31, 2009. Dividends on preferred stock accrue whether or not they have been declared. As of December 31, 2009, dividends not declared and in arrears were $253,125. The net asset value after giving effect to the dividends when declared and paid would be $2.25.
6. Financial Instruments
Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. The fair values presented below have been determined by using available market information and by applying valuation methodologies.
Loans Receivable and Life Settlement Contracts
·
Loans receivable and life settlement contracts are recorded at their estimated fair value (see Note 2).
Investment Securities
·
The estimated fair value of publicly traded equity securities is based on quoted market prices and privately held equity securities are recorded at their estimated fair value (see Note 2).
Debt
·
The carrying value of the bank debt is a reasonable estimate of fair value as the interest rates are variable, based on prevailing market rates.
·
The fair value of the SBA debentures was computed using the discounted amount of future cash flows using the Company’s current incremental borrowing rate for similar types of borrowings. The estimated fair values of such debentures as of December 31, 2009 and June 30, 2009 were approximately $21,204,000 and $11,844,000 respectively. However, the Company does not expect that the estimated fair value amounts determined for these debentures would be realized in an immediate settlement of such debentures with the SBA.
·
The carrying value of the note payable, other is a reasonable estimate of the fair value based on prevailing market rates.
Other
The carrying value of cash and cash equivalents, accrued interest receivable and payable, and other receivables and payables approximates fair value due to the relative short maturities of these financial instruments
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7. Related Party Transactions
The Company paid fees of $4,513 and $30,271 for the six months ended December 31, 2009 and 2008, respectively, for legal services provided by a law firm related to the chairman and certain other officers and directors of the Company (the “Law Firm”).
Total occupancy costs under existing leases and overhead cost reimbursement agreements paid to the Law Firm and to another entity in which an officer of the Company has a financial interest amounted to $145,853 and $153,274 for the six months ended December 31, 2009 and 2008, respectively.
The Company utilized a relative of an officer of the Company to perform part-time administrative services. This individual was paid per hour for administrative work he performs for the Company. For the six months ended December 31, 2009 and 2008, he was paid an aggregate of $0 and $8,465, respectively.
The Company pays printing fees to a company partially owned by an officer and stockholder of the Company. An aggregate of $3,838 and $8,760 for the six months ended December 31, 2009 and 2008, respectively, was paid for these services.
See Note 4 for additional related party transactions.
8. Commitments and Contingencies
Interest Rate Swap
In October, 2005, Elk entered into two (2) interest rate swap transactions for $5,000,000 each, to hedge against an upward movement in interest rates relating to outstanding bank debt. The swap transaction which expired October 15, 2007 provided for a fixed rate of 6.20%, and the swap transaction which expired October 14, 2008 provided for a fixed rate of 6.23%. If the Company’s floating borrowing rate (the one-month LIBOR rate plus 1.5%) fell below the fixed rate, Elk was obligated to pay the bank the differences in rates. If the Company’s floating borrowing rate rose above the fixed rate, the bank was obligated to pay Elk the differences in rates. For the six months ended December 31, 2009 and 2008, Elk incurred additional net interest expense of $0 and $32,973, respectively, due to the fluctuation of interest rates under these agreements. As of December 31, 2009, the Company had no interest rate swaps outstanding.
9. Stock Option Plans
Employee Incentive Stock Option Plan
An employee stock option plan (the “1999 Employee Plan”) was adopted by the Ameritrans Board, including a majority of the non-interested directors, and approved by a vote of the stockholders, in order to link the personal interests of key employees to the Company’s long-term financial success and the growth of stockholder value. The Plan has a ten (10) year life which expires in May, 2009. Subsequent amendments to the 1999 Employee Plan were approved by the stockholders in January 2002 and June 2007. The amendments increased the number of shares reserved under the plan to 300,000 shares.
The 1999 Employee Plan authorized the grant of incentive stock options within the meaning of the Section 422 of the Internal Revenue Code for the purchase of an aggregate of 300,000 shares (subject to adjustment for stock splits and similar capital changes) of Common Stock to the Company’s employees. Effective as of May 21, 2009, in accordance with the terms of the 199 Employee Plan, the Board can no longer issue incentive stock options pursuant to such plan. The Board adopted the 1999 Employee Plan to be in a better position attract, motivate, and retain as employees people upon whose judgment and special skills the Company’s success in large measure depends. As of December 31, 2009, options to purchase an aggregate of 291,850 shares of Common Stock outstanding with 271,850 fully vested.
The 1999 Employee Plan is administered by the 1999 Employee Plan Committee of the Board, which is comprised solely of non-employee directors (who are “outside directors” within the meaning of Section 152(m) of the Internal Revenue Code and “disinterested persons” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (the “Exchange Act”)). The committee can make such rules and regulations and establish such procedures for the administration of the 1999 Employee Plan as it deems appropriate. Effective May 21, 2009, the 1999 Employee Plan expired.
Non-Employee Director Stock Option Plan
A stock option plan for non-employee directors (the “Director Plan”) was adopted by the Ameritrans Board and approved by a vote of the stockholders, in order to link the personal interests of non-employee directors to the Company’s long-term financial success and the growth of stockholder value. The Director Plan is substantially identical to, and the successor to, a non-employee director stock option plan adopted by the Board of Elk and approved by its stockholders in September 1998 (the “Elk Director Plan”). Ameritrans and Elk submitted an application for, and received on August 31, 1999, an exemptive order relating to these plans from the SEC. The Director Plan was amended by the Board on November 14, 2001, and
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approved by the stockholders at the Annual Meeting on January 18, 2002. The amendment is still subject to the approval of the Securities and Exchange Commission. The amendment (i) increases the number of shares reserved under the plan from 75,000 to 125,000 and (ii) authorizes the automatic grant of an option to purchase up to 1,000 shares at the market value at the date of grant to each eligible director who is re-elected to the Board.
The total number of shares for which options may be granted from time to time under the Director Plan is 75,000 shares, which will be increased to 125,000 shares upon SEC approval of the Amended Director Plan. As of December 31, 2009, options to purchase an aggregate of 75,000 shares were issued and outstanding with 49,462 fully vested under the Director Plan. The Director Plan is administered by a committee of directors who are not eligible to participate in the Director Plan. Effective May 21, 2009, the Director Plan expired.
Options Granted, Expired and Canceled
There were no options granted or canceled during either of the six month periods ended December 31, 2009 and 2008.
On October 29, 2009, 29,425 grants expired.
After adoption of ASC 718-10 (previously SFAS No. 123R, “Accounting for Stock-Based Compensation ”) (see Note 1), the fair value of the options granted amounted to $191,040 at December 31, 2009 and June 30, 2009, which is reflected as stock options outstanding in the accompanying consolidated statements of assets and liabilities. Compensation expense related to options vested for the six months ended December 31, 2009 and 2008 was $26,897 and $57,269, respectively. As of December 31, 2009, total deferred compensation related to unvested options was $2,269, which is expected to be recognized over a period of approximately one year.
The following tables summarize information about the transactions of both stock option plans as of December 31, 2009:
| | | | |
| | | | |
| | Stock Options |
| | Number of Options | | Weighted
Average
Exercise Price
Per Share |
Options outstanding at June 30, 2009 | | 366,850 | $ | 3.90 |
Granted | | - | | - |
Canceled | | - | | - |
Expired | | 29,425 | | 4.70 |
Exercised | | - | | - |
Options outstanding at December 31, 2009 | | 337,425 | $ | 3.83 |
| | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
Range of Exercise Prices | | Number Outstanding at December 31, 2009 | | Weighted Average Remaining Contractual Life | | Weighted Average Exercise Price | | Number Exercisable at December 31, 2009 | | Weighted Average Exercise Price |
$5.56-$6.12 | | 29,425 | | 1.00 years | | $5.81 | | 29,425 | | $5.81 |
$3.60 | | 13,888 | | 3.39 years | | $3.60 | | 13,888 | | $3.60 |
$6.25 | | 16,000 | | 0.04 years | | $6.25 | | 16,000 | | $6.25 |
$5.28 | | 80,000 | | 3.41 years | | $5.28 | | 80,000 | | $5.28 |
$5.30 | | 9,433 | | 1.98 years | | $5.30 | | 9,433 | | $5.30 |
$4.50 | | 20,000 | | 2.78 years | | $4.50 | | 20,000 | | $4.50 |
$4.93 | | 10,141 | | 2.36 years | | $4.93 | | 10,141 | | $4.93 |
$1.78 | | 25,538 | | 4.35 years | | $1.78 | | - | | $1.78 |
$2.36 | | 133,000 | | 3.78 years | | $2.36 | | 133,000 | | $2.36 |
$1.78-$6.25 | | 337,425 | | 3.14 years | | $3.83 | | 311,887 | | $3.83 |
Effective December 10, 2009, the date on which the Investment Advisory Agreement with Velocity became effective, no further grants will be made under the Stock Option Plan. Effective May 21, 2009, the date on which the Employee Plan and the Director Plan expired, no further grants will be made pursuant to such plans. On October 29, 2009, 29,425 grants expired.
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10. Financial Highlights
| | | | | | |
| | | | | | |
| | Six Months Ended December 31, 2009 | | Six Months Ended December 31, 2008 | | Year Ended June 30, 2009 |
Net share data | | | | | | |
Net asset value at the beginning of the period | $ | 3.40 | $ | 5.06 | $ | 5.06 |
Net investment loss | | (0.54) | | (.30) | | (0.86) |
Net realized and unrealized losses on investments | | (0.54) | | (.20) | | (0.73) |
Net decrease in net assets from operations | | (1.08) | | (.50) | | (1.59) |
Distributions to Stockholders (4) | | - | | (.05) | | (0.07) |
Total decrease in net asset value | | (1.08) | | (.65) | | (1.66) |
Net asset value at the end of the period | $ | 2.32 | $ | 4.51 | $ | 3.40 |
Per share market value at beginning of period | $ | 1.63 | $ | 3.01 | $ | 3.01 |
Per share market value at end of period | $ | 1.30 | $ | 2.36 | $ | 1.63 |
Total return(1) | | (20.25%) | | (19.9%) | | (43.5%) |
Ratios/supplemental data | | | | | | |
Average net assets (2) (in 000’s) | $ | 9,710 | $ | 16,250 | $ | 14,371 |
Total expense ratio (3) | | 53.3% | | 42.9% | | 43.7% |
Net investment loss to average net assets (5) | | (38.10%) | | (13.0%) | | (20.5%) |
(1)
Total return is calculated by dividing the change in market value of a share of common stock during the year, assuming the reinvestment of dividends on the payment date, by the per share market value at the beginning of the year.
(2)
Average net assets excludes capital from preferred stock.
(3)
Total expense ratio represents total expenses divided by average net assets annualized for interim periods.
(4)
Amount represents total dividends on both common and preferred stock divided by weighted average shares.
(5)
Annualized for interim periods.
11. Subsequent Events
The Company has evaluated subsequent events that have occurred through February 16, 2010, the date of the financial statements issuance.
The Company extended its bank loan agreements through June 30, 2010 and July 6, 2010 (see Note 4).
12. Recent Accounting Pronouncements
In January 2010, FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820),” that requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. The FASB also clarified existing fair-value measurement disclosure guidance about the level of disaggregation, inputs, and valuation techniques. The new and revised disclosures are required to be implemented for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements of Level 3 activity. Those disclosures are effective for interim and annual periods beginning after December 15, 2010. The Compan y does not expect adoption of FASB ASU 2010-06 to have a material impact on its financial condition and results of operations.
In December 2009, FASB issued ASU No. 2009-17, “Consolidations: Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” that amends the FASB ASC for the issuance of FASB Statement No. 167, “Amendments to FASB Interpretation No. 46(R).” The amendments in this ASU replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact such entity’s economic performance and (1) the obligation to absorb losses of such entity or (2) the right to receive benefits from such entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a con trolling financial interest in a variable interest entity. The amendments in ASU No. 2009-17 also require additional disclosures about a reporting entity’s involvement in variable interest entities, which will enhance the information provided to users of financial statements. ASU No. 2009-17 is effective for annual periods beginning after November 15, 2009. The Company does not expect adoption of this standard to have a material impact on its financial condition and results of operations.
In September 2009, the FASB issued Accounting Standards Update 2009-12, “Fair Value Measurements and Disclosures (Topic 820), Investments in Certain Entities That Calculate Net Asset value per Share or its Equivalent” (FASB ASU 2009-12). FASB ASU 2009-12 amends Subtopic 820-10, Fair Value Measurements and Disclosures - Overall, and permits in certain circumstances a reporting entity to measure the fair value of an investment on the basis of the net asset value per share of the investment. Additionally, the update requires additional disclosures such as the nature of any restrictions on the investor’s ability to redeem its investments at the measurement date, any unfunded commitments and the investment
25
strategies of the investees. FASB ASU 2009-12 is effective for reporting periods ending after December 15, 2009 with early adoption permitted. The adoption of FASB ASU 2009-12 did not have a material impact on its financial condition or results of operations.
In August 2009, the FASB issued Accounting Standards Update 2009-05, “Fair Value Measurements and Disclosures (Topic 820), Measuring Liabilities at Fair Value” (FASB ASU 2009-05). FASB ASU 2009-05 provides amendments to subtopic 820-10, Fair Value Measurements and Disclosures Overall, clarifies the techniques a reporting entity should use in valuing a liability in circumstances where a quoted price in an active market for an identical liability is not available, as well as clarifying that the requirements needed for Level 1 fair value measurements when the quoted price of an identical liability is utilized. FASB ASU 2009-05 is effective for the first reporting period beginning after issuance. The adoption of FASB ASU 2009-05 to did not have a material impact on its financial condition or results of operations.
In June 2009, FASB issued ASC 105, (previously SFAS NO. 168,The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“GAAP”) — a replacement of FASB Statement No. 162 (“Codification”) ). This Codification will become the source of authoritative U.S. GAAP recognized by FASB to be applied by nongovernmental entities. Once the Codification is in effect, all of its content will carry the same level of authority, effectively superseding SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles . In other words, the GAAP hierarchy will be modified to include only two levels of GAAP: authoritative and nonauthoritative. The Codification is not intended to change GAAP, but it will change the way GAAP is organized and presented. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2 009. In order to ease the transition to the Codification, the Company has provided the Codification cross-reference alongside the references to the standards issued and adopted prior to the adoption of the Codification.
In June 2009, FASB issued ASC 810 (previously SFAS No. 167,Amendments to FASB Interpretation No. 46(R), which amends the guidance in FASB Interpretation No. (“FIN”) 46(R),Consolidation of Variable Interest Entities ). It requires reporting entities to evaluate former qualifying special-purpose entities (“QSPEs”) for consolidation, changes the approach to determining the primary beneficiary of a variable interest entity (a “VIE”) from a quantitative assessment to a qualitative assessment designed to identify a controlling financial interest, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a VIE. It also clarifies, but does not significantly change, the characteristics that identify a VIE. ASC 810 requires additional year-end and interim disclosures for public and non-public companies that are similar to the disclosures required by FSP FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities. ASC 810 is effective as of the beginning of a company’s first fiscal year that begins after November 15, 2009, and for subsequent interim and annual reporting periods. All QSPE’s and entities currently subject to FIN 46(R) will need to be reevaluated under the amended consolidation requirements as of the beginning of the first annual reporting period that begins after November 15, 2009. Early adoption is prohibited. The Company does not expect the adoption of the provisions of ASC 810 will have a material impact on our financial condition and results of operations.
In June 2009, the FASB issued ASC 860 (previously SFAS No. 166, Accounting for Transfer of Financial Assets, which amends the guidance in SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities). It eliminates the QSPEs concept, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies the derecognition criteria, revises how retained interests are initially measured, and removes the guaranteed mortgage securitization recharacterization provisions. ASC 860 requires additional year-end and interim disclosures for public and nonpublic companies that are similar to the disclosures required by FSP FAS 140-4 and FIN 46(R)-8. ASC 860 is effective as of the beginning of a company’s first fiscal year that begins after November 15, 2009, and for subsequent interim and annual reporting periods. ASC 860’s disclosure requirements must be applied to transfers that occurred before and after its effective date. Early adoption is prohibited. The Company does not expect the adoption of the provisions of ASC 860 will have a material impact on our financial condition and results of operations.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this section should be read in conjunction with the consolidated Financial Statements and Notes therewith appearing in this quarterly report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended June 30, 2009, filed with the Commission by the Company on September 28, 2009 and which is available on the Company’s web site at www.ameritranscapital.com.
CRITICAL ACCOUNTING POLICIES
Investment Valuations
The Company’s loans receivable, net of participations and any unearned discount are considered investment securities under the 1940 Act and are recorded at fair value. As part of fair value methodology, loans are valued at cost adjusted for any unrealized appreciation (depreciation). Since no ready market exists for these loans, the fair value is determined in good faith by management, and approved by the Board of Directors. In determining the fair value, the Company and Board of Directors consider factors such as the financial condition of 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. Foreclosed properties, which represent collateral received from defaulted borrowers, are valued similarly.
Loans are considered “non-performing” once they become 90 days past due as to principal or interest. The value of past due loans are periodically determined in good faith by management, and if, in the judgment of management, the amount is not collectible and the fair value of the collateral is less than the amount due, the value of the loan will be reduced to fair value .
Equity investments (common stock and stock warrants, including certain controlled subsidiary portfolio investments) and investment securities are recorded at fair value.
The Company records the investment in life insurance policies at fair value, represented as cost, plus or minus unrealized appreciation or depreciation. The fair value of the investment in life settlement contracts have no ready market and are determined in good faith by management, and approved by the Board of Directors, based on secondary market conditions, policy characteristics and actuarial life expectancy, including health evaluations.
Because of the inherent uncertainty of valuations, the Company’s estimates of the values of the investments may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.
Effective July 1, 2008, the Company adopted ASC 820-10 (previously SFAS 157, Fair Value Measurements), which expands the application of fair value accounting for investments.
Assets Acquired in Satisfaction of Loans
Assets acquired in satisfaction of loans are carried at the estimated fair value adjusted for estimated 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.
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 significant change relate to the determination of the fair value of the Company’s investments.
Income Recognition
Interest income, including interest on loans in default, is recorded on an accrual basis and in accordance with loan terms to the extent such amounts are expected to be collected. The Company recognizes interest income on loans classified as non-performing only to the extent that the fair market value of the related collateral exceeds the specific loan balance. Loans that are not fully collateralized and in the process of collection are placed on nonaccrual status when, in the judgment of management, the collectability of interest and principal is doubtful.
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 outcome 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
27
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. Elk is an SBIC that has been operating since 1980, making loans to (and, to a limited extent, investments in) small businesses, who qualify under SBA Regulations. Most of Elk’s business historically consisted of originating and servicing loans collateralized by taxi medallions and loans to and investments in other diversified businesses. Since completing the sale of the medallion portfolio, most of the Company’s net interest income has been generated from its Corporate and Commercial loans. Historically, Elk’s earnings derived primarily from net interest income, which is the difference between interest earned on interest-earning assets (consisting of business loans), and the interest paid on interest-bearing liabilities (consisting of indebtedness to Elk’s banks and subordinated debentures issued to the SBA). Net interest income is a function of the net interest rate spread, which is the diffe rence between the average yield earned on interest-earning assets and the average interest rate paid on interest-bearing liabilities, as well as the average balance of interest-earning assets as compared to interest-bearing liabilities. Unrealized appreciation or depreciation on loans and investments is recorded when Elk adjusts the value of a loan to reflect management’s estimate of the fair value, as approved by the Board of Directors.
Results of Operations for the Three Months Ended December 31, 2009 and 2008
Total Investment Income
The Company’s investment income for the three months ended December 31, 2009 decreased $486,156, or 50%, to $484,588, as compared to the three months ended December 31, 2008. The decrease in investment income between the periods can be attributed primarily to an overall decrease in the size of the Company’s loan receivable portfolio due to the sale of substantially all of the Company’s taxicab medallion portfolio. The Company also stopped accruing interest income of approximately $70,000 for the quarter which primarily was interest on its life settlement portfolio and two (2) other Commercial Loans.
Medallion loans outstanding as of December 31, 2009 decreased by $453,829, or approximately 67%, to $223,984, as compared with December 31, 2008. The average interest rate earned on medallion loans decreased in 2009 as compared with the prior year, which coupled with the decline in portfolio size, lead to a decrease in medallion income for the quarter December 31, 2009 of approximately $364,500 as compared to the same period December 31, 2008.
Commercial Loans as of December 31, 2009 decreased by $3,317,461, or 26%, to $9,203,036, as compared with December 31, 2008. The decrease in Commercial Loans was due to loan amortization and paid off loans of approximately $2,400,000, a reduction in the fair value of a certain Commercial Loan of $250,000 and the sale of real estate which had collateralized a Commercial Loan which was foreclosed on and had been carried at $665,000.
Corporate Loans outstanding as of December 31, 2009 decreased by $159,825, or 1%, to $12,652,285, as compared with December 31, 2008. The interest rate earned on Corporate Loans increased in 2009, as compared with the prior year, primarily due to interest rate “resets” on Corporate Loans due to covenant defaults. The decrease in Corporate Loans outstanding was due to the sale of one (1) loan totaling approximately $940,000, amortization of other loans totaling approximately $500,000, and the reduction of the fair value of certain loans of approximately $715,000 partially offset by the addition of two (2) new loans totaling approximately $2,000,000. As these loans were originated in December, 2009, their contribution to income was minimal.
Life settlement contracts outstanding decreased by $1,505,139 as of December 31, 2009, or 62%, as compared with the three months ended December 31, 2008. This investment has stopped accruing interest and a fair value adjustment of $1,600,000 has been made to reflect the value of the investment. The investment has been valued based on industry valuation. This revaluation was partially offset by additional premiums paid. The reduction in interest income for the three months ended December 31, 2009 was approximately $66,000. (See Note 2 of the consolidated financial statements).
Operating Expenses
Interest expense for the three months ended December 31, 2009 decreased $84,941, or 32%, to $181,154, as compared to the three months ended December 31, 2008. This decrease was primarily due to the substantial reduction in bank debt outstanding which was paid off October 29, 2008 when compared with the three months ended December 31, 2008.
Salaries and employee benefits for the three months ended December 31, 2009 decreased $323,742 to $464,256, or approximately 41%, when compared to the three months ended December 31, 2008. This decrease reflects the reduction in payroll for an outsourced controller and a one-time payment to a key employee in connection with a restructuring of his employment agreement.
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Occupancy costs for the three months ended December 31, 2009 decreased $8,261 to $70,978, or approximately 10% when compared with three months ended December 31, 2008. This was due to a temporary increase in rented office space during 2008 that did not occur in 2009.
Professional fees for the three months ended December 31, 2009 decreased $53,266 to $301,773, or approximately 15%, when compared to the three months ended December 31, 2008. Accounting fees for internal controls decreased approximately $41,000 to $35,829 when compared to the three months ended December 31, 2008. In 2008, documentation with regard to controls was being improved, therefore considerably more fees were spent on implementation. Legal fees to non-related parties decreased approximately $6,000 to $113,123 when compared to the three months ended December 31, 2008. Legal fees to related parties decreased approximately $7,300 to $6,677 when compared to the three months ended December 31, 2008. Accounting fees decreased approximately $2,200 to $49,925 when compared to the three months ended December 31, 2008. Audit fees decreased approximately $34,000 to $63,868 when compared to the three months ended December 3 1, 2008. This decrease was due to a reduction in audit fees attributable to the Company’s smaller portfolio. These decreases were partially offset by increases in legal fees associated with the Company’s life settlement portfolio of $32,000. Advisory Fees increased approximately $219,537 when compared to the three months ended December 31, 2008. This increase was primarily due to a one-time payment of $225,000 as specified in the Advisory Agreement. Miscellaneous administrative expenses decreased $28,401, or 19%, when compared with the three months ended December 31, 2008. These decreases were primarily due to a reduction in line and facility fees as a result of the reduction in loan portfolio size.
Decrease in Net Assets from Operations and Net Unrealized/Realized Gains (Losses)
Net decrease in net assets from operations was $720,884, for the three months ended December 31, 2009 as compared to $1,307,397, for the three months ended December 31, 2008. The change in net assets from operations between the periods was attributable primarily to a decrease in unrealized depreciation of approximately $800,000, $540,000 of which was a revaluation upward of life settlements and decreases in other loans’ unrealized depreciation partially offset by reduction in net investment income of approximately $250,000 . Dividends for Participating Preferred Stock were not declared for the three months ended December 31, 2009. For three months ended December 31, 2008 dividends for Participating Preferred Stock were $84,375.
Results of Operations for the Six Months Ended December 31, 2009 and 2008
Total Investment Income
The Company’s investment income for the six months ended December 31, 2009 decreased $1,691,857, or 70%, to $738,348, as compared to the six months ended December 31, 2008. The decrease in investment income between the periods can be attributed to lower interest rates charged on the total loan portfolio for the quarter, and an overall decrease in the size of the Company’s loan receivable portfolio due to the sale of substantially all of the Company’s taxicab medallion portfolio. A reduction of interest income of approximately $70,000 which primarily reflects non-performing loans and interest on life settlement during the six months ended December 31, 2009.
Medallion loans outstanding as of December 31, 2009 decreased by $453,829, or approximately 67%, to $223,984, as compared with December 31, 2008. The interest rate earned on medallion loans decreased in 2009 as compared with the prior year, which coupled with the decline in portfolio size, lead to a decrease in medallion income for the quarter December 31, 2009 of approximately $30,000 as compared to the same period December 31, 2008.
Commercial Loans as of December 31, 2009 decreased by $3,317,461, or 26%, to $9,203,036, as compared with December 31, 2008. The decrease was due to an increase of fair value adjustments of approximately $210,000, foreclosure and sale of real estate which had secured a Commercial Loan for $470,000, pay downs and pay off of loans.
Corporate Loans outstanding as of December 31, 2009 decreased by $159,825, or 1%, to $12,652,285, as compared with the six months ended December 31, 2008. The interest rate earned on Corporate Loans decreased in 2009, as compared with the prior year, primarily due to decreases in LIBOR. This LIBOR decrease was partially offset by higher rates earned on loans originated in this fiscal year, the use of LIBOR “floors” in loan agreements, and further offset by increases in rates on existing loans due to covenant resets. The decrease in loans outstanding was due to a sale of a loan for approximately $940,000 and amortization on other corporate loans totaling approximately $500,000 and a fair value adjustment of loans of approximately $715,000, partially offset by the funding of two (2) new loans totaling $2,000,000.
Life settlement contracts outstanding decreased by $1,505,139 as of December 31, 2009, or 61%, as compared with the six months ended December 31, 2008. This investment has stopped accruing interest and a fair value adjustment downward of approximately $1,611,758 has been made to reflect the value of the investment. The reduction in interest income for the six months ended December 31, 2009 was approximately $66,000. (See Note 2 of the consolidated financial statements).
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Operating Expenses
Interest expense for the six months ended December 31, 2009 decreased $405,961, or 54%, to $347,413, as compared to the six months ended December 31, 2008. This decrease was primarily due to the substantial reduction in bank debt outstanding when compared with the six months ended December 31, 2008.
Salaries and employee benefits for the six months ended December 31, 2009 decreased $357,547 to $914,412, or approximately 28%, when compared to the six months ended December 31, 2008. This decrease reflects the reduction in payroll for an outsourced controller and a one-time payment to a key employee in connection with a restructuring of his employment agreement in 2008.
Occupancy costs for the six months ended December 31, 2009 were $145,853 which did not materially change when compared with six months ended December 31, 2008.
Professional fees for the six months ended December 31, 2009 decreased $279,362 to $510,611, or approximately 35%, when compared to the six months ended December 31, 2008. Accounting fees for internal controls decreased approximately $129,906 to $78,850 when compared to the six months ended December 31, 2008. In 2008 documentation with regard to controls was being improved, therefore considerably more fees were spent on implementation. Legal fees to non-related parties decreased approximately $117,957 to $153,600 when compared to the six months ended December 31, 2008. Through better management of professional resources, the Company reduced the costs of preparing its SEC filings. Audit fees decreased approximately $69,275 to $103,524 when compared to the six months ended December 31, 2008. This decrease was due to a reduction in audit fees attributable the Company’s smaller portfolio. These decreases were partially offset by increases in legal fees for Vibrant life services of $59,175 and accounting fees of $4,362. Advisory Fees increased approximately $264,537 when compared to the six months ended December 31, 2008. This increase was primarily due to a one-time payment of $225,000 as specified in the Advisory Agreement and further impacted by an increase in Corporate Loans outstanding when compared to the prior period. Miscellaneous administrative expenses decreased $111,694, or 27%, when compared with the six months ended December 31, 2008.
Decrease in Net Assets from Operations and Net Unrealized/Realized Gains (Losses)
Net assets from operations decreased to $3,694,879 for the six months ended December 31, 2009 as compared to $1,768,003 for the six months ended December 31, 2008. The decrease in net assets from operations between periods was attributable primarily to a decrease in investment income of approximately $1,600,000. This decrease was due to lower interest rates and smaller investment portfolio. Unrealized losses increased by approximately $900,000 reflected the restructuring of investments. Realized losses increased by approximately $200,000. The decreases were partially offset by a reduction in operating expenses of approximately $900,000 as discussed above.
Dividends on Participating Preferred Stock were not declared for the six months ended December 31, 2009. Dividends on Participating Preferred Stock were $168,750 for the six months ended December 31, 2008.
Financial Condition at December 31, 2009 and June 30, 2009
Assets and Liabilities
Total assets increased $7,529,339 to $35,815,495, at December 31, 2009 as compared to June 30, 2009 total assets of $28,286,156. This increase was primarily due to an increase in cash and equivalents of approximately $10,000,000, from funding of $9,175,000 in new debentures by the SBA and debt financing of approximately $2,000,000 partially offset by the funding of new loans of $2,000,000. This was partially offset by a decrease in investments of $2,596,506 due to a decrease in the fair value of the investments due to a revaluation of certain loans. Total liabilities increased by $11,197,321, to $24,339,635 at December 31, 2009 as compared to June 30, 2009, primarily due to an increase in SBA debentures and debt offering financing of $11,200,000.
Liquidity and Capital Resources
The Company has funded its operations through private and public placements of its securities, bank financing, the issuance to the SBA of its subordinated debentures and internally generated funds.
At December 31, 2009, approximately 1.5% of the Company’s indebtedness was represented by indebtedness to its banks and other lenders with variable rates ranging from 3.9% to 4.5%, whereas approximately 87% of the Company’s indebtedness was due to debentures issued to the SBA with fixed rates of interest plus user fees resulting in rates ranging from 4.99% to 5.54%. At December 31, 2009, approximately 11.5% of the Company’s indebtedness was represented by certain notes payable which were issued in December, 2009. At December 31, 2009, the Company had available $370,000 of credit lines from its banks, of which $370,000 was drawn down as of that date, subject to the statutory and regulatory limitations imposed by the SBA.
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In September 2006, the Company invested in life settlement contracts which require the company to continue premium payments to keep the policies in force through the insured’s life expectancy, or until such time the policies are sold. The Company may sell the policies at any time, at its sole discretion. However, if the Company chooses to keep the policies, as of and after December 31, 2009, premium payments due through the life expectancy of the insured are approximately $3,703,000 over the next five years and approximately $2,527,000 thereafter (see Note 2 of the consolidated financial statements).
In December 31, 2009, the Company received from the SBA an additional $9,175,000 in SBA long term guaranteed debentures. The debentures carry an initial interest rate of 0.28%. On March 23, 2010, the debentures will be pooled and a new interest rate set. The new rate will then be fixed for the life of the debenture.
Loan amortization and prepayments also provide a source of funding for the Company. Prepayments on loans are influenced significantly by general interest rates, economic conditions and competition.
The Company 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. To provide the funds necessary for expansion, management expects to raise additional capital and to incur, from time to time, additional bank indebtedness and to obtain SBA loans. There can be no assurances that such additional financing will be available on acceptable terms.
Recently Issued Accounting Standards
Refer to Note 12 in the accompanying consolidated financial statements for a summary of the recently issued accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
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 investment portfolio at fair value as determined in good faith by the Company’s Board of Directors in accordance with the Company’s valuation policy. Unlike certain lending institutions, the Company is not permitted to establish reserves for loan losses. Instead, the Company must value each individual investment and portfolio loan on a quarterly basis. The Company records unrealized depreciation on investments and loans when it believes that an asset has been impaired and full collection is unlikely. Without a readily ascertainable market value, the estimated value of the Company’s portfolio of investments may differ significantly from the values that would be placed on the investment portfolio if there existed a ready market for the investments. The Company adjusts the valuation of the portfolio quarterly to reflect the Board of Directors’ estimate of the current fair value of each comp onent of the portfolio. Any changes in estimated fair value are recorded in the Company’s statement of operations as net unrealized appreciation or depreciation on investments.
In addition, the illiquidity of our investment portfolio may adversely affect our ability to dispose of investments at times when it may be advantageous for us to liquidate such investments. Also, if we were required to liquidate some or all of the investments in the portfolio, the proceeds of such liquidation might be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we loan and invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. As interest rates rise, our interest costs increase, decreasing the net interest rate spread we receive and thereby adversely affect our profitability. Although we intend to continue to manage our inter est 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.
Assuming that the assets and liabilities were to remain constant and no actions were taken to alter the existing interest rate sensitivity, a hypothetical immediate 1% increase in interest rates would have resulted in an additional net increase in net assets from operations of $95,532 at December 31, 2009. This is comprised of a 1% change in two components, loans receivable of $19,476,546 at variable interest rate terms, and $370,288 for bank debt subject to variable market rates. This hypothetical does not take into account interest rate floors or caps on the Company’s loan receivable portfolio. No assurances can be given however, that actual results would not differ materially from the potential outcome simulated by these estimates.
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ITEM 4T. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate disclosure controls and procedures ( as defined in Rules 13a-15( e ) and 15d-15( e) under the Exchange Act). Our management, with the participation of our Chief Executive Officer, President and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures. Based on such evaluation, our management, including our Chief Executive Officer, President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2009.
Because of their inherent limitations, disclosure controls and procedures may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the three months ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The matters discussed in this Quarterly Report, as well as in future oral and written statements by management of Ameritrans Capital Corporation, that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes ,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking statements contained in this Quarterly Report include but are not limited to statements as to:
·
our future operating results;
·
our business prospects and the prospects of our existing and prospective portfolio companies;
·
the impact of investments that we expect to make;
·
our informal relationships with third parties;
·
the dependence of our future success on the general economy and its impact on the industries in which we invest;
·
the ability of our portfolio companies to achieve their objectives;
·
our expected financings and investments;
·
our regulatory structure and tax treatment;
·
our ability to operate as a BDC and a RIC; and
·
the adequacy of our cash resources and working capital.
You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report.
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PART II. OTHER INFORMATION
INFORMATION INCORPORATED BY REFERENCE. Certain information previously disclosed in Part I of this quarterly report on Form 10-Q are incorporated by reference into Part II of this quarterly report on Form 10-Q.
Item 1. Legal Proceedings
The Company is not currently a party to any material legal proceeding. From time to time, the Company is engaged in various legal proceedings incident to the ordinary course of its business. In the opinion of the Company’s management and based upon the advice of legal counsel, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision would result in a material adverse effect on the Company’s results of operations or financial condition.
Item 1A. Risk Factors
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company held a special meeting of its stockholders on December 10, 2009 (the “Meeting”). In connection with the Meeting, the Company solicited proxies from its stockholders pursuant to Regulation 14 under the Securities and Exchange Act of 1934, as amended. At the Meeting, the Company’s stockholders voted upon a proposal to approve an Investment Advisory and Management Agreement with Velocity Capital Advisors LLC, and cast their votes as follows:
| | | | | | |
| | FOR | | AGAINST | | ABSTAIN |
Common stock, par value $.0001 per share | | 1,888,495 | | 71,773 | | 24,967 |
| | | | | | |
9-3/8% cumulative participating Redeemable preferred stock | | 55,059 | | 4,700 | | 5,726 |
Item 5. Other Information
On January 4, 2010, Elk executed a fixed rate promissory note with Bank Leumi USA (the “Leumi Note”) to extend its current line of credit in the principal amount of $120,000 to July 6, 2010 at an interest rate of 4.00%. As part of the agreement, Elk must maintain a certificate of deposit in the amount of $120,000.
On January 31, 2010, Elk executed an agreement to extend its line of credit with Israel Discount Bank in the principal amount of $352,000 to June 30, 2010 at an interest rate of 1% over the bank’s prime rate of interest. The credit line was increased to $352,000 and currently $250,000 is drawn.
Item 6. Exhibits
The Exhibits filed as part of this report on Form 10-Q are listed on the Exhibit Index immediately preceding such Exhibits, which Exhibit index is incorporated by reference.
Exhibit Index
(a)
Exhibits
10.1 Executed Fixed Rate Promissory Note dated January 4, 2010 between Elk Associates Funding Corp. and Bank Leumi USA and extended to July 6, 2010. (attached hereto)
10.2 Executed Demand Grid Promissory Note dated April 30, 2009 between Elk and Israel Discount Bank of New York as amended as of October 31, 2009, January 31, 2010 and extended to June 30, 2010 (attached hereto)
31.1 Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (attached hereto)
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31.2 Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (attached hereto)
32.1 Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (attached hereto)
32.2 Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (attached hereto)
(All other items of Part II are inapplicable)
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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: February 16, 2010
By:/s/ Michael Feinsod
Michael Feinsod
Chief Executive Officer and President
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