SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Quarterly Period Ended March
31, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
Commission File Number 0-22153
AMERITRANS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-2102424
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
747 Third Avenue
Fourth Floor
New York, New York 10017
(Address of Registrant's (Zip Code)
principal executive office)
Registrant's telephone number, including area code: (800) 214-1047
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of Common Stock, par value $.0001 per share, outstanding as
of May 9, 2001: 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 March 31, 2001
(unaudited) and June 30, 2000.......................................1
Consolidated Statements of Operations --For the Three Months
and Nine Months Ended March 31, 2001 and 2000 (unaudited) ..........3
Consolidated Statements of Cash Flows -- For the Nine
Months Ended March 31, 2001 and 2000 (unaudited) ...................4
Notes to Consolidated Financial Statements ...........................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................12
PART II. OTHER INFORMATION
Item 5. Other Information ....................................................13
Item 6. Exhibits and Reports on Form 8-K .....................................13
Signatures ........................................................14
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PART I
FINANCIAL INFORMATION
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2001 (Unaudited) and June 30, 2000
ASSETS
March 31, 2001 June 30, 2000
Loans receivable ............................................ $ 56,435,260 $ 56,806,579
Less: allowance for loan losses ............................. (572,000) (380,000)
------------ ------------
55,863,260 56,426,579
Cash and cash equivalents ................................... 603,427 376,507
Accrued interest receivable ................................. 1,015,553 928,765
Assets acquired in satisfaction of loans .................... 944,503 609,106
Receivables from debtors on sales of assets acquired
in satisfaction of loans ................................ 426,553 743,954
Equity securities ........................................... 416,766 631,974
Furniture, fixtures and leasehold improvements, net ......... 94,249 110,019
Prepaid expenses and other assets ........................... 274,594 467,720
------------ ------------
TOTAL ASSETS ............................ $ 59,638,905 $ 60,294,624
============ ============
The accompanying notes are an integral part of these financial statements.
-1-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2001 (Unaudited) and June 30, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 2001 June 30, 2000
-------------- -------------
LIABILITIES
Debentures payable to SBA ............................ $ 8,880,000 $ 8,880,000
Notes payable, banks ................................. 37,250,000 37,800,000
Accrued expenses and other liabilities ............... 409,781 365,328
Accrued interest payable ............................. 246,495 365,270
Dividends payable .................................... 196,380 --
------------ ------------
TOTAL LIABILITIES ............................... 46,982,656 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 .................................. (834,322) (725,057)
Accumulated other comprehensive income ............... 18,922 137,434
------------ ------------
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ...................... 12,656,249 12,884,026
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................. $ 59,638,905 $ 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 Nine Months Ended March 31, 2001 and 2000
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
March 31, 2001 March 31, 2000 March 31, 2001 March 31, 2000
INVESTMENT INCOME
Interest on loans receivable $1,655,672 $ 1,612,746 $ 4,696,174 $ 4,519,669
Fees and other income 73,896 118,675 255,932 409,991
Gain on sales of equity securities 109,507 90,748 121,637 166,917
---------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 1,839,075 1,822,169 5,073,743 5,096,577
---------------------------------------------------------------------------
OPERATING EXPENSES
Interest 904,712 887,450 2,649,482 2,433,497
Salaries and employee benefits 199,409 202,743 509,013 483,871
Legal fees 58,985 94,495 139,022 332,044
Miscellaneous administrative expenses 213,373 169,809 654,628 607,726
Loss on assets acquired in
satisfaction of loans, net 19,474 30,240 75,242 32,175
Directors' fee 10,500 11,625 10,000 31,875
Bad debt expense -- 89,080 194,298 170,130
Recapitalization Costs -- 77,104 -- 423,045
Writeoff of Merger Costs 413,187 -- 413,187 --
---------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 1,819,640 1,562,546 4,644,872 4,514,363
---------------------------------------------------------------------------
OPERATING INCOME 19,435 259,623 428,871 582,214
---------------------------------------------------------------------------
NET INCOME BEFORE INCOME TAXES 19,435 259,623 428,871 582,214
INCOME TAXES 2,652 6,712 10,092 18,695
---------------------------------------------------------------------------
NET INCOME $ 16,783 $ 252,911 $ 418,779 $ 563,519
OTHER COMPREHENSIVE (LOSS) INCOME
Net reclassification adjustment
for gains included in net income
and unrealized gain on equity
security (118,512) (149,999) (118,512) (149,999)
---------------------------------------------------------------------------
COMPREHENSIVE (LOSS) INCOME $ (101,729) $ 102,912 $ 300,267 $ 413,520
===========================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 1,745,600 1,745,600 1,745,600 1,745,600
Diluted 1,745,600 1,748,360 1,745,600 1,748,360
---------------------------------------------------------------------------
NET INCOME PER COMMON SHARE
Basic $ 0.0096 $ 0.1449 $ 0.2399 $ 0.3228
Diluted $ 0.0096 $ 0.1447 $ 0.2399 $ 0.3223
===========================================================================
The accompanying notes are an integral part of these financial statements
-3-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended March 31, 2001 and 2000
March 31, 2001 March 31, 2000
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 418,779 $ 563,519
------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 49,272 37,485
Gain on sale of equity securities (121,637) (166,917)
(Increase)decrease in accrued interest receivable (86,788) (87,430)
(Increase) decrease in prepaid expenses and other assets 174,785 16,837
Increase(decrease) in accrued expenses and other liabilities 44,453 219,689
Increase (decrease) in accrued interest payable (118,775) 48,271
------------------------------------
TOTAL ADJUSTMENTS (58,690) 67,935
------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 360,089 631,454
------------------------------------
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 545,323 (7,823,688)
Sales of equity securities 218,333 198,254
Acquisition of furniture, fixtures and leasehold
improvements (15,161) (48,362)
------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 748,495 (7,673,796)
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
(Repayment) Proceeds from notes payable, banks, net (550,000) 7,600,000
Dividends paid (331,664) (960,080)
------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ (881,664) $ 6,639,920
------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 226,920 $ (402,422)
CASH AND CASH EQUIVALENTS - Beginning 376,507 542,290
------------------------------------
CASH AND CASH EQUIVALENTS - Ending $ 603,427 $ 139,868
====================================
The accompanying notes are an integral part of these financial statements.
-4-
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" or "Ameritrans") as of March 31, 2001, the related statements of
operations, and cash flows for the nine months ended March 31, 2001 and March
31, 2000 included in Item 1 have been prepared by the Company, without audit
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "Commission"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying consolidated
financial statements include all adjustments (consisting of normal, recurring
adjustments) necessary to summarize fairly the Company's financial position and
results of operations. The results of operations for the nine months ended March
31, 2001 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,
2000 as filed with the Commission.
Organization and Principal Business Activity
Ameritrans, a Delaware corporation, acquired all of the outstanding shares
of Elk Associates Funding Corporation ("Elk") on December 16, 1999 in a share
for share exchange. Prior to the acquisition, Elk had been operating
independently and Ameritrans had no operations. The historical financial
statements prior to December 16, 1999 were those of Elk.
Elk, a New York corporation, is licensed by the Small Business
Administration ("SBA") to operate as a Small Business Investment Company
("SBIC") under the Small Business Investment Act of 1958, as amended. Elk has
also registered as an investment company under the Investment Company Act of
1940 to make business loans.
-5-
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 has 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 March 31, 2001 and June 30, 2000
approximately 78% and 78%, 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 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 principle
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 March 31, 2001 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 March 31, 2001
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
March 31, 2001 and June 30, 2000, loan costs amounted to $86,535 and $104,877,
respectively, net of accumulated amortization of $157,446 and $139,104,
respectively.
Amortization expense for the periods ended March 31, 2001 and June 30, 2000
was $18,341 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 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.
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.
-8-
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.
NOTE 2 -- Debentures Payable to SBA
At March 31, 2001 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 March 31, 2001 and June 30, 2000, the Company had loan agreements with
three (3) banks for lines of credit aggregating $40,000,000. At March 31, 2001
and June 30, 2000, the Company had $37,250,000 and $37,800,000, respectively,
outstanding under these lines. The loans, which mature through May 8, 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 range from 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 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. 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 expired
sixty months from the date of the repurchase agreement.
-9-
NOTE 5 -- Common Stock
Ameritrans has 5,000,000 authorized common shares, $.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 April 30, 2001 the Company declared a cash dividend of $0.1125 per
common share, for a total of $196,380, which will be paid to stockholders of
record on May 25, 2001 with a payment date of May 31, 2001. Of the $196,380
dividend, which is being paid out of the Company's capital surplus, $87,155 is
attributable to the Company's current earnings.
NOTE 6 -- Income Taxes
The provision for income taxes (benefit) for the periods ended March 31,
2001 and June 30, 2000, consists of the following:
March 31, 2001 June 30, 2000
--------------------------------
Federal $ 1,161 $ 986
State and City 8,931 12,585
-------------------------------
$10,092 $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. This Swap transaction was
entered into to protect the Company from an upward movement in interest rates
relating to outstanding bank debt. On October 13, 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
150 basis points or effective rate of 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.
On January 18, 2000, the Company entered into an additional interest rate
swap transaction for $10,000,000, which expired January 2001 and which was not
renewed at that time. This swap transaction called for a fixed rate of 6.57%
plus 150 basis points or an effective rate of 8.07%.
Loan commitments
At March 31, 2001 and June 30, 2000, the Company had commitments to make
loans totaling approximately $1,503,830 and $2,070,000, at interest rate ranging
from 8.25% to 15%.
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 March 31, 2001
consist of investments in corporations who own and operate Chicago Taxicab
Medallions 11%, a dry cleaner 4%, contact lens distributor 13%, a
Telecommunications Company 66%, and a biotech research company 6%.
Debentures Payable to Small Business Administration -- The fair value of
debentures as of March 31, 2001 and June 30, 2000 was approximately $8,930,000
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:
-10-
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 -- Medallion Merger
On January 31, 2001, the Company terminated an Agreement and Plan of Merger
with Medallion Financial Corporation ("Medallion"). This termination resulted in
a charge of $413,187 in the period ended, March 31, 2001.
-11-
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 on Form 10Q and the Company's Annual Report for the year ended June 30,
2000.
General
The Company 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 regulation 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 Nine Months ended March 31, 2001 and 2000.
Total investment income
The Company's investment income for the nine months ended March 31, 2001
decreased to $5,073,743 from $5,096,577 when compared with the nine months
period ended March 31, 2000. Interest earned on loans receivable increased by
$175,505 offset by decreases on other fees $154,059 and reduced gains on sales
of equity securities $45,280 when compared with the prior period. These changes
were mainly due to management's conservative lending policy during the merger
discussions with Medallion.
Operating Expenses
Interest expense for the nine month period ended March 31, 2001 increased
$215,985 ($2,649,482 from $2,433,497) over the similar period ended March 31,
2000. This increase was mainly due to increased average outstanding bank
borrowings for the period, and due to higher average interest rates over the
period ended March 31, 2001.
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Other operating expenses decreased $85,476 when compared with the similar
period ended March 31, 2000. This decrease was mainly due to a decrease in legal
costs relating to the Company's investment in the Chicago Medallion Market. In
addition, salaries and benefits increased $25,142 and bad debts increased
$24,168, respectively, when compared with the prior period.
During the nine months ended March 31, 2001, the Company wrote off $413,187
in merger costs. During the nine months ended March 31, 2000 the Company wrote
off $423,045 of recapitalization costs.
Results of Operations
For the Three Months ended March 31, 2001 and 2000
Total investment income
The Company's investment income for the three months ended March 31, 2001
increased to $1,839,075 from $1,822,169 when compared with the three month
period ending March 31, 2000. This leveling was due to pending negotiations in
connection with the proposed merger with Medallion Financial Corp. In addition,
there was a gain on the sale of equity securities which amounted to $109,507
compared with $90,748 in the similar quarter of the prior year.
Operating Expenses
Interest expense for the three month period ended March 31, 2001 increased
$17,262 ($904,712 from $887,450) over the similar period ended March 31, 2000.
This increase was mainly due to higher average interest rates for the period
ended March 31, 2001.
Other operating expenses decreased $96,521 when compared with the similar
period ended March 31, 2000. This decrease was due to bad debts written off in
the similar quarter of the prior year. During the three month period ended March
31, 2001 the Company wrote off merger costs in the amount of $413,187. During
the similar quarter ended March 31, 2000, $77,104 of recapitalization costs were
written off.
Balance Sheet and Reserves
Total assets decreased $655,719 as of March 31, 2001 when compared with the
balance sheet as of June 30, 2000. This decrease is due mainly to writedown of
merger costs associated with the potential merger writeoff of $413,187.
Management's decision during the negotiation period was to employ a conservative
lending policy until the merger was completed. The Company utilized its cash
flow during the period to pay down its short term debt $550,000.
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 Reprots on Form 8-K
(b) Reports on Form 8-K
On February 6, 2001 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 and
Medallion Financial Corp. was terminated.
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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
Date: May 15, 2001 By: /s/ Gary C. Granoff
-------------------
Gary C. Granoff
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
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