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, 2000
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
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 13, 2001: 1,745,600
AMERITRANS CAPITAL CORPORATION
FORM 10-Q
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2000
(unaudited) and June 30, 2000 ................................. 1
Consolidated Statements of Operations -- For the Three and Six
Month periods Ended December 31, 2000 and 1999 (unaudited) .... 3
Consolidated Statements of Cash Flows -- For the Six
Months Ended December 31, 2000 and 1999 (unaudited) ........... 4
Notes to Consolidated Financial Statements ...................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 14
PART II. OTHER INFORMATION
Item 5 Other Information ................................................. 15
Item 6. Exhibits and Reports on Form 8-K .................................. 15
Signatures ........................................................ 16
-ii-
PART I
FINANCIAL INFORMATION
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 (Unaudited) and June 30, 2000
ASSETS
December 31, 2000 June 30, 2000
------------------ -------------
Loans receivable ................................... $ 56,159,543 $ 56,806,579
Less: allowance for loan losses .................... (572,000) (380,000)
------------ ------------
55,587,543 56,426,579
Cash and cash equivalents .......................... 614,986 376,507
Accrued interest receivable ........................ 903,864 928,765
Assets acquired in satisfaction of loans ........... 932,814 609,106
Receivables from debtors on sales of assets acquired
in satisfaction of loans ....................... 431,282 743,954
Equity securities .................................. 560,172 631,974
Furniture, fixtures and leasehold improvements, net 94,075 110,019
Prepaid expenses and other assets .................. 760,379 467,720
------------ ------------
TOTAL ASSETS ................... $ 59,885,115 $ 60,294,624
============ ============
The accompanying notes are an integral part of these financial statements.
-1-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 (Unaudited) and June 30, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 2000 June 30, 2000
------------------ -------------
LIABILITIES
Debentures payable to SBA .......................... $ 8,880,000 $ 8,880,000
Notes payable, banks ............................... 37,000,000 37,800,000
Accrued expenses and other liabilities ............. 425,382 365,328
Accrued interest payable ........................... 293,711 365,270
Dividends Payable................................... 331,664
----------- -----------
TOTAL LIABILITIES ............................. 46,930,757 47,410,598
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $.0001 par value: 5,000,000 shares
authorized; 1,745,600 shares issued and outstanding, 175 175
Additional paid-in-capital ......................... 13,471,474 13,471,474
Accumulated deficit ................................ (654,725) (725,057)
Accumulated other comprehensive income ............. 137,434 137,434
----------- -----------
TOTAL STOCKHOLDERS' EQUITY .................... 12,954,358 12,884,026
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $59,885,115 $60,294,624
=========== ===========
The accompanying notes are an integral part of these financial statements.
-2-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months and Six Months Ended December 31, 2000 and 1999
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
December 31, 2000 December 31, 1999 December 31, 2000 December 31, 1999
----------------- ----------------- ----------------- -----------------
INVESTMENT INCOME
Interest on loans receivable $ 1,492,157 $ 1,502,653 $ 3,040,502 $ 2,906,923
Fees and other income 106,053 176,755 182,036 291,316
Gain on sale of equity security 12,130 76,169 12,130 76,169
----------- ----------- ----------- -----------
TOTAL INVESTMENT INCOME 1,610,340 1,755,577 3,234,668 3,274,408
----------- ----------- ----------- -----------
OPERATING EXPENSES
Interest 782,271 818,863 1,744,770 1,546,047
Salaries and employee benefits 168,110 136,119 309,604 281,128
Legal fees 41,746 142,581 80,037 237,549
Miscellaneous administrative expenses 262,964 241,241 441,254 437,917
Loss on assets acquired in
satisfaction of loans, net 36,405 1,876 55,769 1,935
Directors' fee (750) 5,250 (500) 20,250
Bad debt expense -0- 81,050 194,298 81,050
Recapitalization costs 345,941 345,941
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 1,290,746 1,772,921 2,825,232 2,951,817
----------- ----------- ----------- -----------
OPERATING INCOME 319,594 (17,344) 409,436 322,591
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 319,594 (17,344) 409,436 322,591
INCOME TAXES (BENEFIT) 5,349 8,772 7,440 11,983
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 314,245 $ (26,116) $ 401,996 $ 310,608
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
- - Basic 1,745,600 1,745,600 1,745,600 1,745,600
=========== =========== =========== ===========
- - Diluted 1,745,600 1,746,572 1,745,600 1,746,572
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE
- - Basic $ .1800 $ (.0150) $ .2303 $ .1779
=========== =========== =========== ===========
- - Diluted $ .1800 $ (.0150) $ .2303 $ .1778
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
-3-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended December 31, 2000 and 1999
December 31, 2000 December 31, 1999
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 401,996 $ 310,608
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,891 24,985
Increase (Decrease) in accrued interest receivable 24,901 (143,413)
Increase in prepaid expenses and other assets (292,659) (46,036)
Increase in accrued expenses and other liabilities 60,054 38,671
Increase (decrease) in accrued interest payable (71,559) 59,630
----------- -----------
TOTAL ADJUSTMENTS (260,372) (66,163)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 141,624 244,445
----------- -----------
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 828,000 (6,910,242)
(Purchases) sales of equity securities 71,802 (34,760)
Acquisition of furniture, fixtures and leasehold
improvements (2,947) (46,211)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES 896,855 (6,991,213)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment from proceeds of notes payable, banks, net (800,000) 7,600,000
Dividends paid (628,416)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ (800,000) $6,971,584
----------- -----------
The accompanying notes are an integral part of these financial statements.
-4-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED), Continued
For the Six Months Ended December 31, 2000 and 1999
December 31, 2000 December 31, 1999
----------------- -----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 238,479 $ 224,816
CASH AND CASH EQUIVALENTS - Beginning 376,507 542,290
----------- -----------
CASH AND CASH EQUIVALENTS - Ending $614,986 $ 767,106
=========== ===========
The accompanying notes are an integral part of these financial statements.
-5-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- Organization and Summary of Significant Accounting Policies
Financial Statements
The consolidated balance sheet of Ameritrans Capital Corporation (the
"Company") as of December 31, 2000, the related statements of operations, and
cash flows for the six months ended December 31, 2000 and December 31, 1999
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, 2000 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 the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2000 as filed with
the Commission.
Organization and Principal Business Activity
Ameritrans Capital Corporation ("Ameritrans"), a Delaware corporation
acquired all of the outstanding shares of Elk Associats Funding Corporation
("Elk") on December 16, 1999 in a share for share exchange. Prior to the
acquisition, Elk had been operating independently and Ameritrans had no
operations. The historical financial statements prior to December 16, 1999 were
those of Elk.
Elk, a New York corporation, is licensed by the Small Business
Administration ("SBA") to operate as a small Business Investment Company
("SBIC") under the Small Business Investment Act of 1958, as amended. Elk has
also registered as an investment company under the Investment Company Act of
1940 to make business loans.
Ameritrans is a specialty finance company that through its subsidiary, Elk
makes loans to taxi owners, to finance the acquisition and operation of the
medallion taxi businesses and related assets, and to other small businesses in
the New York City, Chicago, Miami, and Boston markets.
Basis of Consolidation
The consolidated financial statements include the accounts of Ameritrans,
Elk and EAF Holding Corporation ("EAF"), a wholly owned subsidiary of Elk,
collectively referred to as the "Company". All significant inter-company
transactions have been eliminated in consolidation.
EAF was formed in June 1992 and began operations in December 1993. The
purpose of EAF is to own and operate certain real estate assets acquired in
satisfaction of loans by Elk.
Ameritrans organized another subsidiary on June 8, 1998, Elk Capital
Corporation ("Elk Capital"), which may engage in similar lending and investment
activities. Since inception, Elk Capital had no operations and activities.
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, 2000 and June 30, 2000
approximately 78% 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 individually evaluates all loans for impairment.
6
Loans Receivable
Loans are placed on nonaccrual status once they become 180 days past due as
to principle 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, 2000 and June 30, 2000.
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 2001, 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, 1999, 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. At December 31, 2000
and June 30, 2000 the Company has 133,336 options outstanding which resulted in
common stock equivalents of nil and 5,084 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, 2000 and June 30, 2000, loan costs amounted to $92,649 and
$104,877, respectively, net of accumulated amortization of $151,332 and
$139,104, respectively.
Amortization expense for the periods ended December 31, 2000 and June 30,
2000 was $12,228 and $24,455, respectively.
7
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.
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 statements 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.
8
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 fiscal year beginning after December
15, 1998. The Company does not expect that the adoption of SOP No. 98-5 will
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.
9
NOTE 2 -- Debentures Payable to SBA
At December 31, 2000 and June 30, 2000 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 $1,500,000
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(1) 430,000
----------
$8,880,000
==========
- ----------
(1) 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, 2000 and June 30, 2000, the Company had loan agreements
with three (3) banks for lines of credit aggregating $40,000,000 and
$40,000,000, respectively. At December 31, 2000 and June 30, 2000, the Company
had $37,000,000 and $37,800,000, respectively, outstanding under these lines.
The loans, which mature through January 2001 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 approximately prime minus 1 1/4%. 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.
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 was amortized over a 60-month period on a
straight- line basis. Should the Company be in default under the repurchase
agreement at any time, the liquidating interest will become fixed at the level
immediately preceding the event of default and will 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
10
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 made to the Company's stockholders. The amount
restricted under this agreement at December 31, 2000 and June 30, 2000 was $-0-.
NOTE 5 -- Common Stock
Ameritrans has 5,000,000 authorized common shares, $0.0001 par value, of
which 1,745,600 shares are issued and outstanding. Ameritrans also has 1,000,000
shares of "blank check" preferred stock, none of which are issued and
outstanding.
On January 10, 2001, the Company declared a cash dividend of $0.19 per
common share, for a total of $331,664, which was paid on January 31, 2001.
NOTE 6 -- Income Taxes
The provision for income taxes for the periods ended December 31, 2000 and
June 30, 2000, consists of the following:
December 31, 2000 June 30, 2000
----------------- -------------
Federal $2,562 $ 986
State and city 4,878 12,585
-------- --------
$7,440 $13,571
======== ========
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. On October 13, 1999, the
Company entered into an additional interest rate swap transaction with the same
bank for $5,000,000 expiring on October 8, 2001. On January 12, 2000, the
Company entered into another interest rate swap transaction for $10,000,000 with
this bank expiring January 8, 2001. These Swap transactions were entered into to
protect the Company from an upward movement in interest rates relating to
outstanding bank debt. These Swap transactions call for a fixed rate of 5.86%,
4.95% and 6.57% (plus 150 basis points for each swap), respectively for the
Company and 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.
11
Loan commitments
At December 31, 2000 and June 30, 2000, the Company had commitments to make
loans totaling approximately $1,290,500 and $2,070,000, 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,
2000 consist of investments in corporations who own and operate Chicago Taxicab
Medallions (11%), a dry cleaner (2%), Miami Taxicab Medallions (26%), a
telecommunications company (57%) and a biotech research company (4%).
Debentures Payable to Small Business Administration -- The fair value of
debentures as of December 31, 2000 and June 30, 2000 was approximately
$9,320,869 and $9,941,000, respectively, 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
12
NOTE 9 -- Subsequent Event
On January 31, 2001, the company terminated an Agreement and Plan of Merger
with Medallion Financial Corporation ("Medallion"). This termination will result
in a charge of approximately $425,000 in the quarter ended March 31, 2001.
13
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 the Company's Annual Report on Forms 10 KSB for the year ended June
30, 2000.
General
Ameritrans acquired Elk on December 16, 1999 in a share-for-share exchange. As
of December 31, 2000 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
regulations 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, 2000 and 1999
Total Investment Income
The Company's investment income for the six months ended December 31, 2000,
decreased to $3,234,668 from $3,274,408, or 1.2% as compared with the six months
ended December 31, 1999. This decrease was mainly due to leveling of the
portfolio as a result of the potential Medallion Transaction. The portfolio was
$58,029,360 at December 31, 1999 vs $56,159,543 at December 31, 2000. The gain
on sale of equity securities for the six months ended December 31, 2000 was
$12,130 as compared to $76,169 for the similar period ended December 31, 1999.
Operating Expenses
Interest expenses for the six month period ended December 31, 2000 increased
$198,723 to $1,744,770 when compared with the six months ended December 31,
1999. This increase was due to higher borrowings in the period combined with
higher interest rates paid during the period. Other operating expenses decreased
$92,615 mainly due to lower legal fees incurred in Chicago due to a decrease in
new loan activity. Bad debt expenses for the six month period ended December 31,
2000 was $194,298 vs $81,050 in the similar period ended December 31, 1999.
In the six month period ended December 31, 1999 the Company incurred $345,941
of recapitalization costs, which was a one time nonrecurring charge.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont.)
Results of Operations
For the Three Months ended December 31, 2000 and 1999
Total Investment Income
The Company's investment income for the three months ended December 31, 2000
decreased to $1,610,340 from $1,755,577 or by $145,237 or (8.3%) for the three
month period ended December 31, 2000 and December 31, 1999. This decrease was
mainly due to a decrease in other fees ($70,702) and decrease in gains on sale
of equity securities ($64,039) during the three month period, which reflects a
slow down of new investments in the Chicago Medallion Market.
Operating Expenses
Interest expense for the three month period ended December 31, 2000 decreased
$36,592 ($782,271 from $818,863) over the similar period ended December 31,
1999. This decrease was mainly due to decreased bank borrowings as compared with
the prior period.
Other operating expenses decreased $18,592 when compared with the similar three
month period ended December 31, 1999. This decrease was mainly due to a decrease
in non-related legal fees incurred consistent with the decrease of new
investments in the Chicago Medallion Market, as discussed above. In addition,
bad debts decreased $81,050 when compared with the similar period.
In the three month period ended December 31, 1999 the Company incurred $345,941
of recapitalization costs, which was a one time nonrecurring charge.
Balance Sheet and Reserves
Total assets decreased $409,509 as of December 31, 2000 when compared with total
assets as of June 30, 2000. This decrease was due to management's decision to
maintain the portfolio at its current level in anticipation of the Medallion
Transaction. Bank debt during the period was reduced by $800,000.
On January 31, 2001 the Company terminated the Agreement and Plan of Merger with
Medallion Financial Corp. The termination will result in a charge of
approximately $425,000 in the quarter ended March 31, 2001.
PART II. OTHER INFORMATION
ITEM 5 -- Other Information
On January 31, 2001 the proposed Agreement and Plan of Merger (the "Merger
Agreement") between the Company, and Medallion Financial Corp. was terminated by
the Company because the parties were unable to reach mutually agreeable terms
for an extension of the closing date.
ITEM 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Promissory Note dated December 15, 2000 between the Company and
Bank Leumi USA and letter of extension between the aforementioned
parties.
(b) Reports on Form 8-K.
On November 16, 2000 the Company filed a current report on Form 8-K
reporting under Item V (Other Events) that on October 31, 2000 Amendment No. 9
to the Merger Agreement was executed, pursuant to which the parties agreed (i)
that the average closing sale price per share of Medallion's common stock on the
NASDAQ Market during the Determination Period (as defined in the Merger
Agreement) at which either party shall have the right to terminate the Merger
Agreement shall be reduced from $15.00 to $14.00 per share; (ii) that the
purchase price (i.e., number of Medallion shares) to be paid to the Company's
shareholders if the average price per share of Medallion common stock during the
Determination Period is between $14.00 and $14.99 shall be calculated by
dividing $8.01 by such average closing price of the Medallion common stock;
(iii) to the modification of certain representations by the Company; (iv) that
the date by which Medallion shall have obtained either approval of the Company's
lenders to the merger or shall have obtained financing satisfactory to it shall
be extended from November 1, 2000, to November 30, 2000; and (v) the date by
which the merger must be completed shall be extended from December 31, 2000, to
January 31, 2001, unless the only condition remaining to be satisfied under the
Agreement is obtaining SBA approval, in which event, such outside date shall be
February 23, 2001. The Company also reported that it was in discussions with
Medallion regarding a further extension of the date by which Medallion shall
have obtained either the consent of the Company's lenders or financing
satisfactory to Medallion.
On November 29, 2000 the Company filed a current report on Form 8-K
reporting under Item V (Other Events) that on November 29, 2000 Amendment No. 10
to the Merger Agreement was executed, pursuant to which the parties agreed to an
extension of the date by which Medallion shall have obtained either the consent
of Ameritrans' lenders to the Merger Agreement or comparable financing
satisfactory to Medallion to January 23, 2001.
On February 6, 2001, subsequent to the period covered by this report, the
Company filed a current report on Form 8-K reporting under Item V (Other Events)
that the Company issued a press release announcing that the proposed Merger
Agreement by and between the Company, Medallion Financial Corp. and AMTC Merger
Corp. was terminated.
15
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 14, 2001 By: /s/ Gary C. Granoff
-------------------
Gary C. Granoff
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
16