SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended December 31, 1999
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
____________
Commission File Number 0-22153
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AMERITRANS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-2102424
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
747 Third Avenue
Fourth Floor - 4th Floor
New York, New York 10017
(Address of Registrant's (Zip Code)
principal executive office)
Registrant's telephone number, including area code: (800) 214-1047
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
The number of shares of Common Stock, par value $.0001 per share,
outstanding as of February 14, 2000: 1,745,600
AMERITRANS CAPITAL CORPORATION
FORM 10-Q
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements...................................................... 1
Consolidated Balance Sheets as of December 31, 1999
(unaudited) and June 30, 1999........................................... 2
Consolidated Statements of Operations -- For the Six Months
and the Three Months ended December 31, 1999 and 1998 (unaudited)....... 4
Consolidated Statements of Cash Flows -- For the Six
Months Ended December 31, 1999 and 1998 (unaudited)..................... 5
Notes to Consolidated Financial Statements................................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders....................... 16
Item 5. Other Information......................................................... 17
Item 6. Exhibits and Reports on Form 8-K.......................................... 18
Signatures.............................................................. 19
-i-
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
On December 16, 1999, Ameritrans Capital Corporation (the "Company") acquired
Elk Associates Funding Corporation ("Elk") in a share-for-share exchange. Prior
to the acquisition, Elk had been operating independently and the Company had no
operations. The consolidated balance sheet of the Company as of December 31,
1999, the related statements of operations, and cash flows for the six months
ended December 31, 1999 and December 31, 1998 included in Item 1 have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying consolidated
financial statements include all adjustments (consisting of normal, recurring
adjustments) necessary to summarize fairly the Company's financial position and
results of operations. The results of operations for the six months ended
December 31, 1999 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 Elk's Annual Report on Form 10-K/A for the fiscal year ended June
30, 1999 as filed with the Commission.
-1-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 (Unaudited) and June 30, 1999
ASSETS
December 31, 1999 June 30, 1999*
----------------- --------------
Loans receivable $ 58,029,360 $ 51,103,932
Less: allowance for loan losses (380,000) (380,000)
------------ ------------
57,649,360 50,723,932
Cash and cash equivalents 767,106 542,290
Accrued interest receivable 858,039 714,626
Assets acquired in satisfaction of loans 612,491 612,491
Receivables from debtors on sales of assets acquired
in satisfaction of loans 394,752 409,939
Equity securities 944,146 909,386
Furniture, fixtures and leasehold improvements, net 126,668 105,440
Prepaid expenses and other assets 538,733 492,697
------------ ------------
TOTAL ASSETS $ 61,891,295 $ 54,510,801
============ ============
* Restated
The accompanying notes are an integral part of these financial statements.
-2-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,1999 (Unaudited) and June 30, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
December 30, 1999 June 30, 1999*
----------------- --------------
LIABILITIES
Debentures payable to SBA $ 8,880,000 $ 8,880,000
Notes payable, banks 38,600,000 31,000,000
Accrued expenses and other liabilities 262,129 223,458
Accrued interest payable 414,548 354,918
Dividends payable 331,664 314,208
----------- -----------
TOTAL LIABILITIES 48,488,341 40,772,584
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value: 5,000,000 shares
authorized; 1,745,600 shares issued and outstanding, 175 175
Additional paid-in-capital 13,125,533 13,214,558
Restricted capital -0- 256,916
Retained earnings 15,493 4,815
Accumulated other comprehensive income 261,753 261,753
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,402,954 13,738,217
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $61,891,295 $54,510,801
=========== ===========
* Restated
The accompanying notes are an integral part of these financial statements.
-3-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months and Six Months Ended December 31, 1999 and 1998
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
December 31, 1999 December 31, 1998 December 31, 1999 December 31, 1998
----------------- ----------------- ----------------- -----------------
INVESTMENT INCOME
Interest on loans receivable $ 1,502,653 $ 1,258,639 $ 2,906,923 $ 2,475,744
Fees and other income 176,755 87,642 291,316 219,204
Gain on sales of equity security 76,169 -0- 76,169 -0-
----------- ----------- ----------- -----------
TOTAL INVESTMENT INCOME 1,755,577 1,346,281 3,274,408 2,694,948
----------- ----------- ----------- -----------
OPERATING EXPENSES
Interest 818,863 617,983 1,546,047 1,192,115
Salaries and employee benefits 136,119 136,030 281,128 274,483
Legal fees 142,581 51,926 237,549 144,261
Miscellaneous administrative expenses 241,241 216,485 437,917 410,007
Loss on assets acquired in
satisfaction of loans, net 1,876 (1,547) 1,935 268
Directors' fee 5,250 4,500 20,250 13,250
Bad debt expense 81,050 19,890 81,050 48,965
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 1,426,980 1,045,267 2,605,876 2,083,349
----------- ----------- ----------- -----------
OPERATING INCOME 328,597 301,014 668,532 611,599
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 328,597 301,094 668,532 611,599
INCOME TAXES (BENEFIT) 8,772 (5,656) 11,983 (293)
----------- ----------- ----------- -----------
NET INCOME $ 319,825 $ 306,670 $ 656,549 $ 611,892
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
- - Basic 1,745,600 1,745,600 1,745,600 1,745,600
=========== =========== =========== ===========
- - Diluted 1,746,572 1,745,600 1,746,572 1,745,600
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE
- - Basic $ .1832 $ .1757 $ .3761 $ .3505
=========== =========== =========== ===========
- - Diluted $ .1831 $ .1757 $ .3760 $ .3505
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
-4-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended December 31, 1999 and 1998
December 31, 1999 December 31, 1998
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 656,549 $ 611,892
----------- -----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 24,985 18,375
Increase in accrued interest receivable (143,413) (82,454)
Increase in prepaid expenses and other assets (46,036) (136,715)
Increase in accrued expenses and other liabilities 38,671 59,272
Increase in accrued interest payable 59,630 75,113
----------- -----------
TOTAL ADJUSTMENTS (66,163) (66,409)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 590,386 545,483
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans receivable, assets acquired in
satisfaction of loans and receivables from debtors
on sales of assets acquired in satisfaction of loans (6,910,242) (6,286,934)
Purchases (sales) of equity securities - net (34,760) (195,947)
Acquisition of furniture, fixtures and leasehold
improvements (46,211) (11,134)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (6,991,213) (6,494,015)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable, banks, net 7,600,000 5,565,000
Dividends paid (628,416) (628,416)
Capitalization of restructuring costs (345,941)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 6,625,643 $ 4,936,584
----------- -----------
The accompanying notes are an integral part of these financial statements.
-5-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED), Continued
For the Six Months Ended December 31, 1999 and 1998
December 31, 1999 December 31, 1998
----------------- -----------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS $ 224,816 $(1,011,948)
CASH AND CASH EQUIVALENTS - Beginning 542,290 1,755,429
----------- -----------
CASH AND CASH EQUIVALENTS - Ending $ 767,106 $ 743,481
=========== ===========
The accompanying notes are an integral part of these financial statements.
-6-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- Organization and Summary of Significant Accounting Policies
Organization and Principal Business Activity
Ameritrans Capital Corporation (the "Company"), a Delaware corporation,
acquired all of the outstanding shares of Elk Associates Funding Corporation
("Elk"), on December 16, 1999 in a share for share exchange. Prior to the
acquisition, Elk had been operating independently and the Company had no
operations. The company is registered with the United States Securities and
Exchange Commission as a Business Development Company under the Investment
Company Act of 1940.
Elk is licensed by the Small Business Administration ("SBA") to operate as
a Small Business Investment Company ("SBIC") under the Small Business Investment
Act of 1958, as amended. Elk has also registered as a Business Development
Company under the Investment Company Act of 1940 to make business loans.
The Company makes loans to taxi owners to finance the acquisition and
operation of the medallion taxi businesses and related assets, and to other
small businesses in the New York City, Chicago, Miami, and Boston markets.
Loans and the Allowance for Loans Losses
Loans are stated at cost, net of participation with other lenders, less an
allowance for possible losses. This amount represents the fair value of such
loans as determined in good faith by the Board of Directors. The allowance for
loan losses is maintained at a level that, in the Board of Directors' judgement,
is adequate to absorb losses inherent in the portfolio. The allowance for loan
losses is reviewed and adjusted periodically by the Board of Directors on the
basis of available information, including the fair value of the collateral held,
existing risk of individual credits, past loss experience, the volume,
composition and growth of the portfolio, and current and projected economic
conditions. Because of the inherent uncertainty in the estimation process, the
estimated fair values of the loans may differ significantly from the values that
would have been used had a ready market existed for such loans and the
differences could be material. As of December 31, 1999 and June 30, 1999
approximately 80% and 79%, respectively, of all loans are collateralized by New
York City, Boston, Chicago, and Miami taxicab medallions.
Accounting Standard for Impairment of Loans
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 114 as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan --
Income Recognition and Disclosure", a loan is determined to be impaired if it is
probable that the contractual amounts due will not be collected in accordance
with the terms of the loan. The SFAS generally requires that impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. As all of the Company's loans are collateral dependent,
impairment is measured based on the fair value of the collateral. If the fair
value of the impaired loan is less than the recorded investment in the loan
(including accrued interest, net of deferred loan fees or costs, and unamortized
premium or discount) the Company recognized an impairment by creating a
valuation allowance with a corresponding charge to the provision for loan
losses. The Company evaluates all loans individually for impairment.
-7-
Loans Receivable
Loans are placed on nonaccrual status once they become 180 days past due as
to principal or interest. In addition, loans that are not fully collateralized
and in the process of collection are placed on nonaccrual status when, in the
judgement of management, the ultimate collectibility of interest and principal
is doubtful.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to be
cash equivalents.
The Company has cash balances in banks in excess of the maximum amount
insured by the FDIC as of December 31, 1999 and June 30, 1999.
Income Taxes
The Company has elected to be taxed as a Regulated Investment Company under
the Internal Revenue Code. A Regulated Investment Company will generally not be
taxed at the corporate level to the extent its income is distributed to its
stockholders. In order to be taxed as a Regulated Investment Company, the
Company must pay at least 90 percent of its net investment company taxable
income to its stockholders as well as meet other requirements under the Code. In
order to preserve this election for fiscal 2000, the Company intends to make the
required distributions to its stockholders in accordance with applicable tax
rules.
Depreciation and Amortization
Depreciation and amortization of furniture, fixtures and leasehold
improvements is computed on the straight-line method at rates adequate to
allocate the cost of applicable assets over their expected useful lives.
Net Income per Share
During the year ended June 30, 1998, the Company adopted the provision of
Statements of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
No. 128"). SFAS No. 128 eliminates the presentation of primary and fully
dilutive earnings per share ("EPS") and requires presentation of basic and
diluted EPS. Basic EPS is computed by dividing income (loss) available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS is based on the weighted-average number of shares of common
stock and common stock equivalents outstanding at year end. Common stock
equivalents have been excluded from the weighted-average shares for 1998, as
inclusion is anti- dilutive. At December 31, 1999 and June 30, 1999 the Company
had 122,224 and 100,000 options outstanding, of which 52,224 and 30,000 options,
respectively, are considered anti-dilutive and the remaining 70,000 and 70,000
options, respectively, are dilutive and resulted in common stock equivalents of
972 and 5084 shares, respectively.
Loan Costs
Loan costs are included in prepaid expenses and other assets. Amortization
of loan costs is computed on the straight-line method over ten (10) years. At
December 31, 1999 and June 30, 1999, loan costs amounted to $117,104 and
$129,331, respectively, net of accumulated amortization of $126,877 and
$114,650, respectively.
-8-
Assets Acquired in Satisfaction of Loans
Assets acquired in satisfaction of loans are carried at estimated fair
value less selling costs. Losses incurred at the time of foreclosure are charged
to the allowance for loan losses. Subsequent reductions in estimated net
realizable value are recorded as losses on assets acquired in satisfaction of
loans.
Basis of consolidation
The consolidated financial statements include the accounts of the Company,
Elk and EAF Holding Corporation ("EAF") which are wholly owned subsidiaries of
the Company. All intercompany transactions have been eliminated.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Estimates that are particularly susceptible to change relate to the
determination of the allowance for loan losses and the fair value of financial
instruments.
Comprehensive Income
During the year ended June 30, 1999, the Company adopted SFAS No. 130
"Reporting Comprehensive Income". SFAS 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income.
Stock-Based Compensation
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued. SFAS 123 prescribes accounting and reporting standards for all
stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB25") and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company intends to continue to account for its stock based
compensation plans in accordance with the provisions of APB 25.
Business Segment
During the year ended June 30, 1999, the Company adopted SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information", which
supersedes SFAS No. 14, "Financial Reporting for Segments of A Business
Enterprise". SFAS No. 131 establishes standards for the way the public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statement regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Company has
determined that under SFAS No. 131, it operates in one segment of financing
services. The Company's customers and operations are within the United States.
-9-
Loan Sales and Servicing Fee Receivable
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" was issued in June 1996. SFAS 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. This statement also provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. It requires that liabilities
and derivatives incurred or obtained by transferors as part of a transfer of
finanical assets be initially measured at fair value. SFAS 125 also requires
that servicing assets be measured by allocating the carrying amount between the
assets sold and retained interest based on their relative fair values at the
date of transfer. Additionally, this statement requires that the servicing
assets and liabilities be subsequently measured by (a) amortization in
proportion to and over the period of estimated net servicing income or loss and
(b) assessment for asset impairment or increased obligation based on their fair
values. SFAS 125 also requires the Company's excess servicing rights be measured
at fair market value and reclassified as interest only receivables and accounted
for in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities". As required by SFAS 125, the Company adopted in the new
requirements effective January 1, 1997. Implementation of SFAS 125 did not have
any material impact on the financial statements of the Company.
New Accounting Pronouncements
In April 1998, Statement of Position ("SOP") 98-5, "Reporting on the Costs
of Start-Up Activities" was issued. This SOP provides guidance on the financial
reporting of start-up costs and organization costs. It requires the costs of
start-up activities and organization costs to be expensed as incurred. The SOP
is effective for financial statements for fiscals year beginning after December
15, 1998. SOP No. 98-5 will not have a material impact on its financial
statements.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued and is required to be adopted in years beginning
after June 15, 1999, which has been deferred to June 30, 2000. Management does
not anticipate that the adoption of the new statement will have a significant
effect on results of operations or the financial position of the Company.
-10-
NOTE 2 -- Debentures Payable to SBA
At December 31, 1999 and June 30, 1999 debentures payable to the SBA
consist of subordinated debentures with interest payable semiannually, as
follows:
Current
Effective Principal
Issue Date Due Date Interest Rate Amount
---------- -------- ------------- ---------
September 1993 September 2003 6.12(1) $1,500,000
September 1993 September 2003 6.12 2,220,000
September 1994 September 2004 8.20 2,690,000
December 1995 December 2005 6.54 1,020,000
June 1996 June 2006 7.71 1,020,000
March 1997 March 2007 7.38(2) 430,000
----------
$8,880,000
==========
(1) Interest rate was 3.12% from inception through September 1998
(2) The Company is also required to pay an additional annual user fee of 1% on
this debenture
Under the terms of the subordinated debentures, the Company 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.
NOTE 3 -- Notes Payable to Banks
At December 31, 1999 and June 30, 1999, the Company had loan agreements
with three (3) banks for lines of credit aggregating $40,000,000 and
$35,000,000, respectively. At December 31, 1999 and June 30, 1999, the Company
had $38,600,000 and $31,000,000, respectively, outstanding under these lines.
The loans, which mature through April 10, 2000, bear interest based on the
Company's choice of the lower of either the reserve adjusted LIBOR rate plus 150
basis points or the bank's prime rates including certain fees which make the
effective rates range from approximately prime minus 1/4% to prime minus 1/2%.
Upon maturity, the Company anticipates extending the lines of credit for another
year, as has been the practice in previous years.
Pursuant to the terms of the agreements the Company is required to comply
with certain terms, covenants and conditions. The Company pledged its loans
receivable and other assets as collateral for the above lines of credit and were
not required to maintain compensating balances.
NOTE 4 -- Preferred Stock
Pursuant to a preferred stock repurchase agreement dated November 10, 1994,
the Company repurchased all cumulative preferred stock from the SBA for $3.50
per share, or an aggregate $1,915,449. As a condition precedent to the
repurchase, the Company granted the SBA a liquidating interest in a newly
established restricted capital surplus account. The surplus account is equal to
the amount of the net repurchase discount. The initial value of the liquidating
interest was $3,557,261, which is being amortized over a 60-month period on a
straight-line basis. Under the repurchase agreement the liquidating interest
would become fixed at the level immediately preceding the event of default and
would not decline further until such time as the default is cured or waived. The
liquidating interest shall expire on (i) sixty months from the date of the
repurchase agreement, or (ii) if any event of default has occurred and such
default has been cured or waived, such later date on which the liquidating
interest is fully amortized. Should the Company voluntarily or involuntarily
liquidate prior to the amortization of the liquidating interest, any assets
which are available, after the payment of all debts of the Company, shall be
distributed first to the SBA until the fair market value of such assets is equal
to the amount of the liquidating interest. Such payment, if any, would be prior
in right to any payments
-11-
made to the Company's stockholders. The amount restricted under this agreement
at December 31, 1999 and June 30, 1999 was approximately $-0- and $256,916,
respectively.
During 1992, the Company authorized the issuance of 752,729 shares of a new
Series B cumulative preferred stock with a 4 percent dividend and a $10 par
value. All preferred shares are restricted solely for issuance to the SBA. No
sales of the Series B preferred shares have occurred to date. On September 30,
1996, Congress passed a law that in effect prevents the SBA from making any
further purchase of 4% preferred stock from any specialized small business
investment company.
In September 1998, the stockholders of the Company approved and in February
1999 the SBA approved an amendment to the Certification of Incorporation of the
Company eliminating all of the authorized Series A and Series B preferred stock
of the Company. This amendment to the Certificate of Incorporation was filed and
became effective on May 21, 1999.
NOTE 5 -- Common Stock
On December 16, 1999, the Company acquired Elk in a share-for-share
exchange. There are currently 5,000,000 shares authorized of $.0001 par value
common stock.
For the year ended June 30, 1998, Elk completed the sale, as part of a
private placement offering, of 462,000 shares of common stock. Total proceeds
from the sale of common stock amounted to $2,888,000, net of direct related
expenses of $115,000.
On January 13, 2000, The Company declared a cash dividend of $0.19 per
common share, for a total of $331,664 which was paid on January 27, 2000.
NOTE 6 -- Income Taxes
The provision for income taxes (benefit) for the periods ended December 31,
1999 and June 30, 1999, consists of the following:
December 31, 1999 June 30, 1999
----------------- -------------
Federal $ 2,063 $ 1,689
State and city 9,920 (2,458)
-------- -------
$ 11,983 $ (769)
======== =======
The above provision represents income taxes incurred on undistributed income for
the respective years.
NOTE 7 -- Commitments and Contingencies
Interest Rate Swap
On June 8, 1998, the Company entered into a $10,000,000 interest rate Swap
transaction with a bank expiring on June 8, 2001. This Swap transaction was
entered into to protect the Company from an upward movement in interest rates
relating to outstanding bank debt. On October 15, 1998, the Company entered into
an additional interest rate Swap transaction with the same bank for $5,000,000
expiring on October 8, 2001. These Swap transactions were entered into to
protect the Company from an upward movement in interest rates relating to
outstanding bank debt (see Note 3 for terms and effective interest rates). These
Swap transactions call for a fixed rate of 5.86% and 4.95%, respectively, plus
1.5 basis points, making the effective rate 7.36% and 6.45%, respectively, for
the Company if the floating one month LIBOR rate is below the fixed rate then
the Company is obligated to pay the bank for the difference in rates. When the
one-month LIBOR rate is above the fixed rate then the bank is obligated to pay
the Company for the differences in rates.
-12-
Interest Rate Cap
At March 20, 1997, the Company was a party to one $5 million notional
interest rate cap. This cap, which expired on March 20, 1999, was purchased by
the Company to protect it from the impact of upward movements in interest rates
related to its outstanding bank debt. The cap provided interest rate protection
on the event that the three-month LIBOR rate exceeded 6.75 percent. The premium
paid for the purchase of this cap was amortized over its life and recorded as an
adjustment to interest expense. Payments received under this cap would be
credited to interest expense.
Loan commitments
At December 31, 1999 and June 30, 1999, the Company had commitments to make
loans totaling approximately $1,463,000 and $4,058,000, at interest rates
ranging from 8.25% to 18%.
NOTE 8 -- Fair Value of Financial Instruments
The following disclosures represent the Company's best estimate of the fair
value of financial instruments, determined on a basis consistent with
requirements of Statement of Financial Accounting Standards, "SFAS" No. 107,
"Disclosure about Fair Value of Financial Instruments".
The estimated fair values of the Company's financial instruments are
derived using estimation techniques based on various subjective factors
including discount rates. Such estimates may not necessarily be indicative of
the net realizable or liquidation values of these instruments. Fair values
typically fluctuate in response to changes in market or credit conditions.
Additionally, valuations are presented as of a specific point in time and may
not be relevant in relation to the future earnings potential of the Company.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company will realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Loans Receivable -- The fair value of loans is estimated at cost net of the
allowance for loan losses. The Company believes that the rates of these loans
approximate current market rates.
Equity Securities -- The Company's equity securities as of December 31,
1999 consist of investments in corporations who own and operate Chicago Taxicab
Medallions (61%), a dry cleaner (3%), Miami Taxicab Medallions (7%) a
Telecommunications Company (24%), and an eyewear Internet company (5%).
Debentures Payable to Small Business Administration -- The fair value of
debentures as of December 31, 1999 and June 30, 1999 was approximately
$8,989,000, and were estimated by discounting the expected future cash flows
using the current rate at which the SBA has extended similar debentures to the
Company.
The fair value of financial instruments that are short-term or reprice
frequently and have a history of negligible credit losses is considered to
approximate their carrying value. Those instruments include balances recorded in
the following captions:
ASSETS LIABILITIES
Cash Notes payable, banks
Accrued interest receivable Accrued interest payable
Assets acquired in satisfaction of loans
Receivables from debtors on sales of
assets acquired in satisfaction of loans
NOTE 9 -- Subsequent Events
On January 18, 2000, the Company entered into an additional interest rate
swap transaction for $10,000,000 with a bank expiring January 8, 2001. This swap
transaction calls for a fixed rate of 6.57% plus 150 basis points or an
effective rate of 8.07%.
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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 used in conjunction with the
Consolidated Financial Statements and Notes therewith appearing in this report
Form 10Q and Elk's Annual Report on Forms 10-KSB for the year ended June 30,
1999.
General
Ameritrans acquired Elk on December 16, 1999 in a share-for-share exchange. As
of December 31, 1999 Ameritrans had no separate operations. Elk is licensed by
the Small Business Administration (SBA) to operate as a Small Business
Investment Company (SBIC) under the Small Business Investment Act of 1958, as
amended. The Company has also registered as an investment company under the
Investment Company Act of 1940.
The Company primarily makes loans and investments to persons who qualify under
SBA Regulations as socially or economically disadvantaged and loans and
investments to entities which are at least 50% owned by such persons. The
Company also makes loans and investments to persons who qualify under SBA
regulation as "non- disadvantaged". The Company's primary lending activity is to
originate and service loans collateralized by New York City, Boston, Chicago,
and Miami Taxicab Medallions. The Company also makes loans and investments in
other diversified businesses.
Results of Operations
For the Six Months ended December 31, 1999 and 1998.
Total Investment Income.
The Company's investment income for the six months ended December 31, 1999
increased to $3,274,408 from $2,694,948 or (21.5%) for the six months as
compared with the six months ended December 31, 1998, respectively. This
increase was mainly due to an increase in the loan portfolio during the period.
The portfolio increased from $47,673,884 as of December 31, 1998 to $58,029,361
as of December 31, 1999, as part of the Company's strategy to maximize
shareholder rate of return by use of bank debt. In addition, there was a gain on
the sale of equity securities which amounted to $76,169.
Operating Expenses
Interest expenses for the six month period ended December 31, 1999
increased $353,932 ($1,546,047 from $1,192,115) over the similar period ended
December 31, 1998. This increase was mainly due to increased bank borrowings for
the period, and due to higher interest rates during the period ended December
31, 1999.
Other operating expenses for the six months ended September 30, 1999
increased $168,675 when compared with the similar period ended December 31,
1998. This increase was mainly due to increases in non-related legal fees
generated from an increase in the Chicago Medallion Market. This amount is
offset by additional origination fee income.
Results of Operations
For the Three Months ended December 31, 1999 and 1998
Total investment income.
The Company's investment income for the three months ended December 31,
1999 increased to $1,755,577 from $1,346,281 or by $409,296 or (30.5%) for the
three month period ended December 31, 1999 and December 31, 1998. This increase
was mainly due to an increase in the loan porfolio during the fiscal year. The
portfolio increased from $47,673,884 as of December 31, 1998 to $58,029,361 as
of December 31, 1999, as part of the Company's strategy to maximize shareholder
rate of return by use of bank debt.
Operating Expenses
Interest expense for the three month period ended December 31, 1999
increased $200,880 ($818,863 from $617,983) over the similar period ended
December 31, 1998. This increase was mainly due to increased bank borrowings for
the period.
Other operating expenses increased $180,833 when compared with the similar
three month period ended December 31, 1998. This increase was mainly due to a
increase in non-related legal fees incurred consistent with the increase of
investments in the Chicago Medallion market, as discussed above. This is offset
by additional origination fee income. In addition, bad debts increased $61,160
when compared with the similar period.
Balance Sheet and Reserves
Total assets increased $7,726,435 as of December 31, 1999 when compared
with total assets as of June 30, 1999. This increase was due to management's
decision to expand its portfolio in the Chicago Medallion Market plus increases
in the diversified loan portfolio. This expansion was financed by additional
bank debt of $7,600,000 in the six month period.
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Year 2000 Compliance
Prior to January 1, 2000, the Company had taken steps to address and
prevent problems in connection with the year 2000 ("Y2K"). Such problems were
expected to occur due to the inability of systems to properly recognize and
process date-sensitive information relating to the Y2K and beyond. Y2K issues
could have affected the Company's information technology systems ("IT") and
informationtion technology systems ("Non-IT").
The Company's main business operation is the operation of Elk. The Company
is a Small Business Investment Company licensed by the Small Business
Administration and as such, most of its business is making loans and investments
to small business concerns. The following are the IT systems that the Company
utilizes:
The Company uses a computer program to track its receivable loans ("Loan
Track"). To address Y2K, more than 18 months ago, the Company engaged the
consultant who originally developed Loan Track for the Company, to test, upgrade
and certify Loan Track as Y2K compliant. The consultant completed all of such
tasks and the Y2K-compliant Loan Track program is now in use in the Company's
regular operations. The Company also utilizes the standard Peachtree accounting
system for general in-house accounting functions. The version of peachtree,
currently in use by the Company, has been upgraded to be Y2K compliant.
The Company also utilizes other industry-wide programs such as Windows 95
and Word Perfect. The current versions are Y2K-compliant. In addition, during
the past twelve months and at the present, the Company has been replacing or
upgrading its computer hardware with equipment that has Y2K readiness. The
Company does not believe that it faces material Y2K issues with respect to its
Non-IT systems.
Costs in connection with Y2K compliance have been (i) to review and upgrade
existing IT systems, (ii) to analyze Y2K readiness of its banks and customers
and (iii) to analyze Non-It Y2K compliance. To date, such costs, have aggregated
approximately $10,000 and for the most part have been for IT review and
upgrades. Such costs are being treated as expenses. The Company spent
approximately $25,000 to replace certain hardware during the fiscal year ending
June 30, 1999 and spent an additional $35,000 during the six months ended
December 31, 1999. The Company has not experienced any Y2K difficulties
subsequent to January 1, 2000 and its information technology systems are
presently functioning properly and running in a routine manner. The cost of such
replacements will be capitalized and depreciated over a five year period.
-15-
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on December 16, 1999 (the
"Annual Meeting").
The Company's shareholders were asked to take the following actions at the
meeting:
1. To consider and vote upon the adoption of an Agreement and Plan of Share
Exchange (the "Share Exchange Plan") dated as of October 21, 1999, between
the Company and Elk, pursuant to which each outstanding share of common
stock of Elk would be exchanged for one share of common stock of the
Company. Pursuant to this share exchange (the "Share Exchange"), the
ownership of each outstanding share of Elk common stock would automatically
vest in the Company (making the Company the holder of all outstanding
shares of Elk common stock), and the holders of the outstanding shares of
Elk common stock would automatically become entitled to receive one share
of the Company's common stock in exchange for each share of Elk common
stock held by them (making the former holders of Elk common stock the
holders of all of the shares of capital stock of the Company then
outstanding).
2. To elect 10 directors to serve until the next Annual Meeting and until
their successors are chosen and qualified.
3. To ratify and approve the selection by the Board of Directors of Marcum &
Kliegman, LLP as Elk's independent public accountants for the fiscal year
ended June 30, 1999.
4. To transact such other business as may properly come before the meeting or
any adjournment or adjournments of the meeting.
The Auditor and Agreement and Plan of Share Exchange Proposals were approved by
the affirmative vote of more than two-thirds of the shares of common stock
outstanding at the Annual Meeting. Each of the proposals received the following
votes:
Votes cast for Against Abstensions Not voted
-------------- ------- ----------- ---------
Share Exchange 1,409,974 1,000 200 32,422
Auditors Proposal 1,437,381 4,200 2,015
With respect to the Board Proposal, the ten (10) individuals nominated for
director were elected by the affirmative vote of a majority of shares of common
stock present at the Annual Meeting. The nominees and votes each received were
as follows:
Votes cast for Withheld
-------------- --------
Gary C. Granoff 1,442,596 1,000
Ellen M. Walker 1,442,596 1,000
Lee A. Forlenza 1,442,596 1,000
Marvin Sabesan 1,442,596 1,000
Steven Etra 1,442,596 1,000
Paul Creditor 1,442,596 1,000
Allen Kaplan 1,442,596 1,000
John L. Acierno 1,442,596 1,000
John R. Laird 1,442,596 1,000
Howard F. Sommer 1,442,596 1,000
-16-
ITEM 5. OTHER INFORMATION
The Company entered into an Agreement and Plan of Share Exchange (the
"Share Exchange Plan") with Elk on the 16th day of December, 1999. Pursuant to
the Share Exchange Plan, each outstanding share of the Elk's common stock was
exchanged on a one-for-one basis for shares of the Company's commmon stock. The
Company previously filed a Registration Statement on Form N-14 (File No.
333-63951) in connection with the Share Exchange Plan.
The Share Exchange Plan was approved by Elk's stockholders at a special
meeting of stockholders held on December 16, 1999. The Share Exchange Plan and
certain related transactions were also approved by the Securities and Exchange
Commission (the "Commission") and the U.S. Small Business Administration.
-17-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A. Agreement and Plan of Share Exchange, dated October 21, 1998 between Elk
and Ameritrans.*
1.1 Grid Demand Promissory Note dated August 27, 1999 between the Company and
Israel Discount Bank of New York.
1.2 Promissory Note date January 15, 2000 between the Company and Bank Leumi
USA and Letter of even date between aforementioned parrties.
1.3 Master Note dated October 4, 1999 between the Company and European American
Bank.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the fiscal quarter ended
December 31, 1999.
- ----------
* Incorporated by reference from the Company's Registration Statement filed
on Form N-14 (File No. 811-8847), filed September 22, 1998.
-18-
AMERITRANS CAPITAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERITRANS CAPITAL CORPORATION
Date: February 15, 2000 By: /s/ Gary C. Granoff
-------------------
Gary C. Granoff
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
AMERITRANS CAPITAL CORPORATION
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