U.S. 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 December 31, 2005
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 of incorporation) (I.R.S. Employer Identification No.)
747 THIRD AVENUE, NEW YORK, NEW YORK 10017
(Address of Registrant's principal executive office) (Zip Code)
(800) 214-1047
(Registrant's telephone number, including area code)
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 (the
"Act") 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 |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Act).
Large accelerated filer |_| Accelerated filer | | Non-accelerated filer |X|
The number of shares of Common Stock, par value $.0001 per share, outstanding as
of February 10, 2006: 2,773,220.
1
AMERITRANS CAPITAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
AMERITRANS CAPITAL CORPORATION 1
PART I. FINANCIAL INFORMATION 1
CONSOLIDATED BALANCE SHEETS 1
LIABILITIES AND STOCKHOLDERS' EQUITY 2
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED STATEMENTS OF CASH FLOWS 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5
ORGANIZATION AND PRINCIPAL BUSINESS ACTIVITY 5
INCOME TAXES 6
LOAN VALUATIONS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 19
ITEM 4. CONTROLS AND PROCEDURES 21
PART II. OTHER INFORMATION 23
ITEM 1. LEGAL PROCEEDINGS 23
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS 23
ITEM 3 DEFAULT UPON SENIOR SECURITIES 23
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 23
ITEM 5-OTHER INFORMATION 23
ITEM 6-- EXHIBITS AND REPORTS ON FORM 8-K 24
EXHIBIT INDEX 24
(a) Exhibits 24
(b) Reports on Form 8-K 27
SIGNATURES 28
EXHIBIT 31.1 29
EXHIBIT 32.1 30
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 (UNAUDITED) AND JUNE 30, 2005
ASSETS
December 31, 2005 June 30, 2005
Loans receivable $ 50,750,739 $ 52,060,254
Less: unrealized depreciation on loans receivable (225,000) (150,000)
Loans receivable, net 50,525,739 51,910,254
Cash and cash equivalents 518,932 327,793
Accrued interest receivable, net of unrealized
deprecation of $36,800 and $59,000, respectively 771,374 756,701
Assets acquired in satisfaction of loans 384,528 384,528
Receivables from debtors on sales of assets acquired
in satisfaction of loans 406,850 455,184
Equity securities 858,985 908,457
Furniture, equipment and leasehold improvements, net 244,906 329,573
Medallions under lease 2,224,701 2,282,201
Prepaid expenses and other assets 386,456 531,904
TOTAL ASSETS $ 56,322,471 $ 57,886,595
The accompanying notes are an integral part of these financial statements.
1
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 (UNAUDITED) AND JUNE 30, 2005
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 2005 June 30,2005
LIABILITIES
Debentures payable to SBA $12,000,000 $12,000,000
Notes payable, banks 25,125,568 29,770,652
Accrued expenses and other liabilities 492,214 604,942
Accrued interest payable 240,139 256,285
Dividends payable 84,375 84,375
TOTAL LIABILITIES 37,942,296 42,716,254
COMMITMENTS AND CONTINGENCIES (Notes 3,4 and 5)
STOCKHOLDERS' EQUITY
Preferred stock 500,000 shares authorized,
none issued or outstanding
9 3/8% cumulative participating callable
preferred stock $.01 par value, $12.00
face value, 500,000 shares authorized;
300,000 shares issued and outstanding 3,600,000 3,600,000
Common stock, $0.0001 par value; 5,000,000 shares authorized;
2,703,220 and 2,045,600 shares issued and 2,693,220 and
2,035,600 shares outstanding at December 31, 2005 and
June 30, 2005, respectively 270 205
Additional paid-in-capital 17,391,109 13,869,545
Accumulated deficit (2,334,327) (2,127,134)
Accumulated other comprehensive loss (206,877) (102,275)
18,450,175 15,240,341
Less: Treasury stock, at cost, 10,000 shares
of common stock (70,000) (70,000)
TOTAL STOCKHOLDERS' EQUITY 18,380,175 15,170,341
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 56,322,471 $ 57,886,595
The accompanying notes are an integral part of these financial statements.
2
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004 (Unaudited)
Three Months Ended Three Months Ended Six Months Six Months
December 31,2005 December 31,2004 Ended Ended
December December
31,2005 31,2004
INVESTMENT INCOME
Interest on loans receivable $1,241,722 $1,154,708 $2,391,505 $2,283,765
Fees and other income 68,649 88,687 150,950 189,227
Leasing income 46,269 73,796 95,737 125,333
(Loss) gain on sale of securities - (50,000) - (50,000)
TOTAL INVESTMENT INCOME 1,356,640 1,267,191 2,638,192 2,548,325
OPERATING
EXPENSES
Interest 586,181 441,400 1,125,454 823,156
Salaries and employee benefits 282,531 293,081 558,769 555 745
Occupancy Costs 46,304 46,434 101,020 95,617
Professional fees 146,684 195,734 216,496 331,298
Other administrative expenses 227,320 297,485 509,109 542,953
Loss and impairments on assets
acquired in satisfaction of
loans, NET 1,031 22,154 4,031 32,547
Foreclosure expenses 12,333 9,194 14,541 14,194
Write off and depreciation
on interest and loans receivable 98,776 288,541 134,624 390,059
TOTAL OPERATING EXPENSES 1,401,160 1,593,623 2,664,044 2,785,569
OPERATING LOSS (44,520) (326,432) (25,852) (237,244)
OTHER INCOME (EXPENSE)
Gain on sale of asset acquired - 1,884 - 1,884
Loss on sale of automobiles (2,867) - (2,867) -
Equity in loss of investee - (2,010) - (4,021)
TOTAL OTHER EXPENSE NET (2,867) (126) (2,867) (2,137)
LOSS BEFORE PROVISION FOR
INCOME TAXES (47,387) (326,558) (28,719) (239,381)
PROVISION FOR INCOME TAXES - 682 9,724 3,147
NET LOSS $ (47,387) $ (327,240) (38,443) (242,528)
DIVIDENDS ON PREFERRED STOCK $ (84,375) $ (84,375) (168,750) (168,750)
NET LOSS AVAILABLE TO COMMON
SHAREHOLDERS $ (131,762) $ (411,615) $(207,193) (411,278)
WEIGHTED AVERAGE SHARES
OUTSTANDING
- - Basic 2,132,075 2,035,600 2,228,551 2,035,600
- -Diluted 2,132,075 2,035,600 2,228,551 2,035,600
NET LOSS PER COMMON SHARE
- - Basic $ (0.06) (0.20) (0.09) (0.20)
- - Diluted $ (0.06) (0.20) (0.09) (0.20)
The accompanying notes are an integral part of these financial statements
3
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004 (Unaudited)
Six Months Ended Six Months Ended
December 31, 2005 December 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (38,443) $ (242,528)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 60,669 74,601
Loss on sale of equity securities - 50,000
(Gain) loss on sale of
assets and assets acquired 2,867 (1,884)
Equity in loss of investee - 4,021
Change in operating assets and liabilities:
Changes in unrealized depreciation on loans
receivable and accrued interest receivable 52,800 275,019
Accrued interest receivable 7,527 166,206
Prepaid expenses and other assets 124,778 (37,644)
Accrued expenses and other liabilities (112,728) 20,949
Accrued interest payable (16,146) 4,068
TOTAL ADJUSTMENTS 119,767 555,336
NET CASH PROVIDED BY OPERATING ACTIVITIES 81,324 312,808
CASH FLOWS FROM INVESTING ACTIVITIES
Loans receivable 1,309,515 (2,683,208)
Assets acquired in satisfaction of loans - 538,319
Receivables from debtors on sales of
assets acquired in satisfaction of loans 48,334 390,458
Proceeds from sale of Medallions and Autos 105,500 -
Purchases of equity securities (60,000) (54,153)
Proceed from equity securities 4,880 -
Purchase of furniture and equiptment (6,209) -
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,402,020 1,808,584)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable, banks 5,615,713 17,493,961
Repayments of notes payable, banks (10,260,797) (15,756,961)
Dividends paid (168,750) (168,750)
Gross proceeds from stock offering 3,847,080 -
Costs associated with stock offering (325,451) -
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,292,205) 1,568,250
NET INCREASE IN CASH AND CASH EQUIVALENTS 191,139 72,474
CASH AND CASH EQUIVALENTS - Beginning 327,793 416,600
CASH AND CASH EQUIVALENTS - Ending $ 518,932 489,074
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES
Unrealized (loss) gain on equity securities $ (104,603) $ 7,108
arising during the period
Reclassification adjustment for loss included $ - $ 45,000
in net loss
Reclassification of assets acquired to $ - $ (154,633)
receivables from debtors on sales of assets
acquired
The accompanying notes are an integral part of these financial statements.
4
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Statements
The consolidated balance sheet of Ameritrans Capital Corporation
("Ameritrans", or the "Company", "our", "us", or "we") as of December 31, 2005,
and the related consolidated statements of operations and cash flows for the
three months and six months ended December 31, 2005 and 2004 have been prepared
by the Company,without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission"). Certain
information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
the Board of Directors and management of the Company ("Management" or "Board of
Directors"), 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 three months ended December 31, 2005 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, 2005, as filed with the
Commission.
Organization and Principal Business Activity
Ameritrans, a Delaware corporation, is a specialty finance company that
through its subsidiary, Elk Associates Funding Corp. ("Elk"), makes loans
primarily to taxi owners to finance the acquisition and operation of taxi
medallions and related assets, and to other small businesses in the New York
City, Chicago, Miami, and Boston markets.
Both Ameritrans and Elk are registered as business development companies,
or "BDC's" under the investment Company Act of 1940 and are subject the
provisions thereof. In addition, both Ameritrans and Elk have elected to be
treated as regulated investment companies, or "RIC's" for purposes under the
Internal Revenue Code (the "Code").
Additionally, 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.
5
Basis of Consolidation
The consolidated financial statements include the accounts of Ameritrans,
Elk, and Elk's wholly owned subsidiaries, EAF Holding Corporation, EAF
Enterprises LLC, Medallion Auto Management LLC, EAF Leasing LLC, EAF Leasing II
LLC and EAF Leasing III LLC, (collectively referred to as the "Company"). All
significant inter-company transactions have been eliminated in consolidation.
EAF Holding Corporation, which was formed in June 1992 and began
operations in December 1993, owns and operates certain real estate assets
acquired in satisfaction of defaulted loans made by Elk.
EAF Enterprises LLC, which was formed in June 2003 and began operations
in July 2003, owns, leases and resells medallions acquired in satisfaction of
foreclosures by Elk.
Medallion Auto Management LLC, which was formed in June 2003 and began
operations in July 2003, owns, leases and resells automobiles in conjunction
with the medallions owned by EAF Enterprises LLC.
EAF Leasing LLC and EAF Leasing II LLC, which were formed in August 2003
and began operations in October 2003, own and lease medallions acquired in
satisfaction of foreclosures by Elk.
EAF Leasing III LLC, which was formed in January 2004 and began
operations in April 2004, owns and leases medallions acquired in satisfaction of
foreclosures by Elk.
Ameritrans organized another subsidiary on June 8, 1998, Elk Capital
Corporation ("Elk Capital"), which may engage in lending and investment
activities similar to its parent. Since its inception, Elk Capital has had no
operations.
Income Taxes
The Company has elected to be taxed as a Regulated Investment Company
("RIC") under the "Code". A RIC generally is not taxed at the corporate level
to the extent its income is distributed to its stockholders. In order to
qualify as a RIC, a Company must payout at least ninety percent (90%) of its net
taxable investment income to its stockholders as well as meet other requirements
under the Code. In order to preserve this election for fiscal year 2006, the
Company intends to make the required distributions to its stockholders in
accordance with the applicable tax code.
The Company is subject to certain state and local franchise taxes, as
well as related minimum filing fees assessed by state taxing authorities. Such
taxes and fees are reported as "provisions for income taxes" and reflected in
each of the periods presented.
6
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income (loss)
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect, in periods in
which they have a dilutive effect, the effect of common shares issuable upon the
exercise of stock options and warrants. The difference between reported basic
and diluted weighted average common shares results from the assumption that all
dilutive stock options outstanding were exercised. For the periods presented,
the effect of common stock equivalents has been excluded from the diluted
calculation since the effect would be antidilutive.
Loan Valuations
The Company's loan portfolio is carried at fair value. Since no ready
market exists for these loans, the fair value is determined in good faith by the
board of directors of the Company (the "Board of Directors"). In determining
the fair value, the Board of Directors, with Management's participation,
considers factors such as the financial condition of the borrower, the adequacy
of the collateral to support the loans, individual credit risks, historical loss
experience and the relationships between current and projected market rates and
portfolio rates of interest and maturities. The Board of Directors has
determined that the fair value of the loans approximates cost less unrealized
depreciation.
Unrealized depreciation in loan values has generally been caused by
specific events related to credit risk. Loans are considered "non-performing"
once they become 90 days past due as to principal or interest. These past due
loans are periodically evaluated by the Board of Directors, with Management's
participation, and if, in the judgment of the Board of Directors, the amount is
not collectible and the fair value of the collateral exceeds the loan balance at
the date of valuation, the Company makes no write-down of the loan amount.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make extensive use of
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Estimates that are particularly susceptible to change
relate to the determination of the fair value of loans receivable and other
financial instruments.
2. MEDALLIONS
During the year ended June 30, 2004, Elk transferred Chicago taxicab
medallions obtained from defaulted and foreclosed loans to certain newly formed
wholly-owned subsidiaries. The subsidiaries borrowed funds in the amount of
$2,382,201 from Elk to complete the purchases of the medallions and gained title
by paying related transfer fees and satisfying outstanding liens with Elk and
Chicago.
7
The subsidiaries in turn, lease these medallions to taxicab operators or
companies in the Chicago market under weekly and long-term operating lease
terms. The weekly leases, which include both medallions and automobiles, are
with individuals and automatically renew each week, up to a maximum period of
157 weeks, but may be terminated by the lessee at the conclusion of any weekly
period. These weekly leases also include an option for the lessee to purchase
either the medallion or automobile or both, at an amount defined in the
agreement, at any time throughout the term of the lease, with credit given for a
portion of the lease payments towards the purchase price. As of September 30,
2005, no purchase options had been exercised. The long-term medallion leases
have been made with taxicab companies, expire from December 31, 2005 through
February 28, 2006, and may be canceled by either party upon forty-five (45) days
advance written notice.
Leasing income under all medallion and taxi cab leases for the three (3)
months and six (6) months ended December 31, 2005 was $46,269
and $95,737 respectively.
During the year ended June 30, 2005, the medallions were written down by
$100,000 to their estimated fair value, based on current market conditions.
During the quarter ended September 30, 2005, one medallion with a carrying value
of $57,500 was sold.
3. DEBENTURES PAYABLE TO SBA
At December 31, 2005 and June 30, 2005, debentures payable to the SBA
consisted of subordinated debentures with interest payable semiannually, as
follows:
ISSUE DATE DUE DATE EFFECTIVE 12/31/05 AND 6/30/05
INTEREST RATE PRINCIPAL AMOUNT
< C>
July 2002 September 2012 4.67%(1) $ 2,050,000
December 2002 March 2013 4.63%(1) 3,000,000
September 2003 March 2014 4.12%(1) 5,000,000
February 2004 March 2014 4.12%(1) 1,950,000
$ 12,000,000
(1) Elk is required to pay an additional annual user fee of 0.866% on
these debentures.
Under the terms of the subordinated debentures, Elk may not repurchase or
retire any of its capital stock or make any distributions to its stockholders
other than dividends out of retained earnings (as computed in accordance with
SBA regulations) without the prior written approval of the SBA.
8
SBA Commitment
In January 2002, the Company and the SBA entered into an agreement
whereby the SBA committed to reserve debentures in the amount of $12,000,000 to
be issued by the Company on or prior to September 30, 2006. A 2% leverage fee
is to be deducted pro rata as the commitment proceeds are drawn down. A 1% non-
refundable commitment fee of $120,000 was paid by Elk in 2002 at the time the
$12,000,000 commitment was obtained. In February 2004, Elk made the final draw
down under this commitment.
4. NOTES PAYABLE TO BANKS
At December 31, 2005 and June 30, 2005, Elk had loan agreements with
three (3) banks for lines of credit aggregating $36,000,000 and $40,000,000
respectively. On December 19, 2005, the Company voluntarily reduced the credit
line with one bank from $8,000,000 to $4,000,000. At December 31, 2005 and June
30, 2005, $25,125,568 and $29,770,652 respectively, were outstanding under these
lines. The loans, which mature at various dates between various dates through
December 31, 2006 and bear interest at the lower of either the reserve adjusted
LIBOR rate plus 1.5% or the banks' prime rates minus 0.5%.
Elk anticipates that upon maturity of the loans, the banks will extend
these lines of credit for another twelve (12) months, as has been their practice
in previous years. Pursuant to the terms of the agreements the Company is
required to comply with certain covenants and conditions, as defined in the
agreements. The Company has pledged its loans receivable and all other assets as
collateral for the above lines of credit. Pursuant to the SBA agreement and an
"intercreditor agreement" among the lending banks, the SBA agreed to
subordination in favor of the banks, provided that the Company maintains certain
debt levels based on performance of its portfolio.
5. COMMITMENTS AND CONTINGENCIES
Interest Rate Swaps
On October 14, 2005, Elk entered into two (2) interest rate swap
transactions for $5,000,000 each which expire October 15, 2007 and October 14,
2008, respectively. Elk entered into these swap transactions to hedge against an
upward movement in interest rates relating to outstanding bank debt. The swap
transaction expiring October 15, 2007 provides for a fixed rate of 6.20%, and
the swap transaction expiring October 14, 2008 provides for a fixed rate of
6.23%. If the Company's floating borrowing rate (the one-month LIBOR rate plus
1.5%) falls below the fixed rate, Elk is obligated to pay the bank the
difference in rates. If the Company's floating borrowing rate rises above the
fixed rate, the bank is obligated to pay Elk the difference in rates.
6. COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) for the three-month periods ended
December 31, 2005 and 2004, after considering other comprehensive income (loss)
including unrealized losses on marketable securities of ($53,510) and $12,556
was ($100,897), and ($314,684), respectively.
9
Total comprehensive income (loss) for the six-month periods ended
December 31, 2005 and 2004, after considering other comprehensive income (loss)
including unrealized losses on marketable securities of ($104,603) and ($7,108)
was ($143,046) and ($235,420), respectively.
7. OTHER MATTERS
Quarterly Dividend
The Company has declared and paid the quarterly dividend on the
Company's 9 3/8 Cumulative Participating Preferred Stock (the "Participating
Preferred Stock") since the Participating Preferred Stock was issued. Most
recently, the Company's Board of Directors declared a dividend of $0.28125 per
share on December 20, 2005 on the Participating Preferred Stock for the period
October 1, 2005 through December 31, 2005, payable on January 16, 2006 to all
holders of the Participating Preferred Stock of record as of December 31, 2005.
Stock Offering
On July 29, 2005, Ameritrans commenced a private offering of Common Stock
with warrants to "accredited investors," as that term is defined in Rule 501 of
Regulation D promulgated under the 1933 Act (the "Offering"). The shares of
Common Stock are being offered at a price no less than book value as of the date
of the Offering. For every four (4) shares of Common Stock purchased, the
Company will issue to the investor one (1) warrant, exercisable for five (5)
years from the date of issuance, to purchase one (1) share of Common Stock of
the Company at an exercise price equal to 110% of the purchase price of the
Shares. This Offering was previously approved by the requisite vote of
shareholders. The Offering is for maximum gross proceeds totaling $10 million.
The Offering period will expire on March 31, 2006. The Board of Directors
believe that raising additional capital pursuant to a private offering will
allow the Company to expand its investment portfolio and diversify the Company's
investments beyond the SBA-regulated loans and investments of Elk. This
diversification will provide the Company with the flexibility to participate in
a wide range of investment opportunities.
As of December 31, 2005, the Company issued 657,620 shares for gross
proceeds totaling $3,847,080, ($3,521,629 net of expenses). A total of 164,405
warrants to purchase shares of Common Stock were issued. Since December 31,
2005, the Company issued an additional 70,000 shares for additional gross
proceeds totaling $409,500. To date, the Company has raised approximately
$3,891,676, net of expenses.
10
SBA Matter
On August 29, 2005, the Company received a letter from the SBA together
with a copy of the Examination Report for the period ended March 31, 2004. The
letter and Examination Report contained findings that Elk had potentially
violated certain provisions of the SBA regulations, relating to (1) the sale of
certain foreclosed Chicago medallions to an associate of Elk without obtaining
the SBA's final written approval, and (2) the creation of subsidiary companies
and completion of certain related financings to those subsidiary companies
without obtaining the SBA's prior written approval. The letter contained
certain other comments with respect to partial use of proceeds concerning one
loan that the Company made to a third party borrower, and a prepayment provision
contained in loan documents to a different borrower. Management has already
responded to the SBA in writing concerning the findings, and is currently
waiting for a written response from the SBA.
The Company believes that it was acting in good faith when it
effectuated the transactions with respect to the sale of the foreclosed Chicago
medallions to an associate, as it had applied for permission from the SBA prior
to completion of the loan in question, had obtained an indication of approval
and the SBA was in the process of taking the steps to obtain formal written
approval for the transaction. The Company believes that it was also acting in
good faith when it created the subsidiary companies (deemed "associates" under
SBA regulations) to purchase the foreclosed medallions, as it was having ongoing
discussions with the SBA at the time to obtain the SBA's approval of the
transaction and had received verbal indications that it felt it had or would, in
due course, subsequently obtain the SBA's written approval to the transactions.
The Company believes that it has adequate explanations for the use of proceeds
issue on the third party loan and the prepayment issue.
Chicago Medallion Sales
At September 30, 2005 Elk had one executed contract with one (1) purchaser
to purchase a total of five (5) Chicago medallions: one (1) being foreclosed and
four (4) being sold by one of Elk's subsidiaries, EAF Enterprises LLC. As part
of the purchase contract, Elk agreed to finance the entire purchase price plus
applicable transfer taxes. The financing term of the loan is an eighty four
(84) month period based upon a 144 month amortization schedule with a balloon
principal payment due at the end of the eighty four (84) month period. As of
October 1, 2005, Elk executed an additional contract with the same principal
purchaser to sell an additional five (5) Chicago medallions being foreclosed on
essentially the same terms and conditions as previously described. On October
24, 2005, Elk signed an additional contract with a different purchaser to
purchase six (6) Chicago medallions being foreclosed. In connection with this
sale, Elk agreed to finance the entire purchase price, but the purchaser is
paying the applicable transfer tax from its own funds. The purchaser is also
supplying its own taxi vehicles as part of this transaction. The financing term
of the loan is a sixty (60) month period based upon a 120 month amortization
schedule with a balloon principal payment due at the end of the sixty (60) month
period. This purchaser is also interested in purchasing an additional six (6)
Chicago medallions being foreclosed on the same terms and conditions. The
parties are presently working on obtaining an additional executed contract of
sale.
11
New Accounting Standards
In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement No. 123(R), "Share-Based Payment" ("SFAS 123(R)"), which
replaced SFAS No. 123, "Accounting for Stock-Based Compensation," and superseded
APB Opinion 25, "Accounting for Stock Issued to Employees." SFAS 123(R)
requires that all share-based payments to employees be recognized in the
financial statements based on their fair values on the date of grant. The
Company currently uses the intrinsic value method to measure compensation
expense for stock-based awards. On April 14, 2005, the SEC amended the
compliance dates for SFAS 123(R), which extended the Company's required adoption
date of SFAS 123R to its fiscal third quarter in its fiscal year ended June 30,
2006. The Company is evaluating the requirements of SFAS 123(R) and expects
that its adoption will not have a material impact on its financial position or
results of operations.
Also in December 2004, the FASB issued Statement No. 153, Exchanges of
Nonmonetary Assets, ("SFAS No. 153") which addresses the measurement of
exchanges of non-monetary assets and eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive assets and replaces
it with an exception for exchanges that do not have commercial substance. SFAS
No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005, with earlier application permitted. Management
believes that the adoption of SFAS No. 153 has not had any impact on the
Company's results of operations or its financial position.
In June 2005, the FASB issued Statement No. 154, Accounting Changes and
Error Corrections, ("SFAS No. 154") which changes the requirements for
accounting for and reporting of a change in accounting principle. SFAS No. 154
requires retrospective application to prior periods' financial statements of a
voluntary change in accounting principle unless it is impracticable. SFAS No.
154 also requires that a change in method of depreciation, amortization, or
depletion for long-lived, non-financial assets be accounted for as a change in
accounting estimate that is effected by a change in accounting principle. SFAS
No. 154 is effective for accounting changes and corrections of errors made for
fiscal years beginning after December 15, 2005, but does not change the
transition provisions of any existing accounting pronouncements, including those
that are in a transition phase as of the effective date of the Statement.
Management believes that the adoption of SFAS No. 154 has not had a material
effect on the Company's results of operations or its financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in this section should be read in conjunction
with the consolidated Financial Statements and Notes therewith appearing in this
quarterly report on Form 10-Q and in the Company's Annual Report on Form 10-K
for the year ended June 30, 2005, filed by the Company on September 28, 2005 and
which is available on the Company's web site at www.ameritranscapital.com.
12
CRITICAL ACCOUNTING POLICIES
In the preparation of the Company's financial statements in conformity
with accounting principles generally accepted in the United States, management
uses judgment in selecting policies and procedures and making estimates and
assumptions that affect amounts reported and disclosed in the financial
statements and related notes. Significant estimates that the Company makes
include valuation of loans and equity investments, evaluation of the
recoverability of various receivables and the assessment of litigation and other
contingencies. The Company's ability to collect receivables and recover the
value of its loans depends on a number of factors, including the financial
condition of the debtors and its ability to enforce provisions of its contracts
in the event of disputes, through litigation if necessary. Although the Company
believes that estimates and assumptions used in determining the recorded amounts
of net assets and liabilities at December 31, 2005 are reasonable, actual
results could differ materially from the estimated amounts recorded in the
Company's financial statements. Key critical accounting policies are those
applicable to the valuation of loans receivable and other investments including
medallions, and contingencies arising from daily operations, as discussed below:
VALUATION OF LOANS RECEIVABLE. For loans receivable, fair value generally
approximates cost less unrealized depreciation. Overall financial condition of
the borrower, the adequacy of the collateral supporting the loans, individual
credit risk, historical loss experience and other factors are criteria
considered in quantifying the unrealized depreciation, if any, that might exist
at the valuation date.
EQUITY SECURITIES. The fair value of publicly traded corporate equity securities
is based on quoted market prices. Privately held corporate equity securities are
recorded at the lower of cost or estimated fair value. For these non-quoted
investments, the Company reviews the financial performance of the companies in
which the investments are maintained. If and when a determination is made that a
decline in fair value below the cost basis is other than temporary, the related
investment is written down to its estimated fair value.
ASSETS ACQUIRED IN SATISFACTION OF LOANS. Assets acquired in satisfaction of
loans are carried at the lower of the net value of the related foreclosed loan
or the estimated fair value less cost of disposal. Losses incurred at the time
of foreclosure are charged to unrealized depreciation on loans receivable.
Subsequent reductions in estimated net realizable value are charged to
operations as losses on assets acquired in satisfaction of loans.
MEDALLIONS. The Company obtained medallions through foreclosure of loans. The
value of such medallions are carried at the lower of the net value of the
related foreclosed loans or the fair market value of the medallions. The
medallions are being treated as having indefinite lives, therefore, the assets
are not being amortized. However, the Company periodically tests their carrying
value for impairment.
13
CONTINGENCIES. The Company is subject to legal proceedings in the course of its
daily operations from enforcement of its rights in disputes pursuant to the
terms of various contractual arrangements. In this connection, the Company
assesses the likelihood of any adverse judgment or outcome to these matters as
well as a potential range of probable losses. A determination of the amount of
reserve required, if any, for these contingencies is made after careful analysis
of each individual issue. The required reserves may change in the future due to
new developments in each matter or changes in approach, such as a change in
settlement strategy in dealing with these matters.
GENERAL
Ameritrans acquired Elk on December 16, 1999 in a share for share
exchange. Elk is licensed by the Small Business Administration (SBA) to operate
as a Small Business Investment Company (SBIC) under the Small Business
Investment Act of 1958, as amended (the "1958 Act"). Both Ameritrans and Elk are
registered as investment companies under the Investment Company Act of 1940.
Elk makes loans to and investments in businesses that qualify under SBA
regulations for funding under the 1958 Act. Elk's primary lending activity is
to originate and service loans collateralized by the cities of New York, Boston,
Chicago and Miami taxicab medallions. Elk also makes loans and investments in
other diversified businesses. At December 31, 2005, 72% of Elk's loan portfolio
consisted of loans secured by taxi medallions and 28% consisted of loans to
other diversified businesses.
From inception through April 2002, Ameritrans' only activity had been the
operations of Elk. In May 2002, Ameritrans began making loans to businesses
using the proceeds raised from a public offering, which was completed in April
2002. Since July 2002 Ameritrans has been making equity investments.
Elk has six (6) wholly-owned subsidiaries: EAF Holding Corporation, EAF
Enterprises LLC, Medallion Auto Management LLC, EAF Leasing LLC, EAF Leasing II
LLC and EAF Leasing III LLC.
EAF Holding Corporation was formed in 1992, and its sole activity is
owning and operating certain real estate assets acquired in satisfaction of
loans. EAF Enterprises LLC was formed in June 2003 to take title to some of the
Company's remaining Chicago foreclosed medallions, and to thereafter lease them
to taxi drivers under a 36-month lease. Medallion Auto Management LLC was formed
in June 2003 to own taxi vehicles used primary in conjunction with EAF
Enterprises LLC's taxi medallion leasing operation. In order to lease the
medallions, Medallion Auto Management LLC was formed to purchase taxi vehicles
and lease the vehicles to operators, pursuant to leases which the operator will
own the vehicle for a nominal payment at the end of the term of the lease, or
have an option to purchase the vehicle for its then unamortized cost. EAF
Leasing LLC, EAF Leasing II LLC and EAF Leasing III LLC were formed to take
title to approximately 35 foreclosed medallions and lease them to large
medallion operators.
14
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004
TOTAL INVESTMENT INCOME
The Company's interest income for the three months ended December 31, 2005
increased $87,014 or 8% to $1,241,722 as compared to the three months ended
December 31, 2004, as a result of an increase in the average interest rates
charged on new and modified loans, which was partially offset by a reduction in
the overall loan portfolio.
OPERATING EXPENSES
Interest expense for the three months ended December 31, 2005 increased
$144,781, or 33%, to $586,181 as compared to the three months ended December 31,
2004, due to higher interest rates charged on outstanding bank borrowing, which
was partially offset by a reduction in the outstanding banks notes payable.
Salaries and employee benefits decreased $10,550, or 4%, as compared to the
similar period in the prior year. These decreases resulted primarily from
decreases in commissions paid to an employee. Professional fees decreased
$49,050, or 25%, as compared to the comparable period in the prior year, due
primarily to a reduction in Chicago legal fees which is due to improvement in
the Chicago Market. Foreclosure expenses increased $3,139 or 34% as compared to
the similar quarter in the prior year. Write off and depreciation of interest
and loans receivable decreased $189,765, or 66%, as compared to the similar
quarter in the prior year. The decrease in the amount of write-offs and
depreciation reflects the reduction of foreclosures of Chicago medallion loans.
Other administrative expenses decreased $70,165 or 24% as compared to the
similar period in the prior year, due primarily to a decrease in Chicago service
fees and computer expense.
NET LOSS
Net loss decreased from $(327,240) for the three months ended December 31,
2004 to $(47,387) for the three months ended December 31, 2005. The decrease in
net loss between the periods was attributable primarily to decreases in
salaries, professional fees and write off and depreciation of interest and loans
receivable, which more than offset the increase in interest expense. Dividends
for Participating Preferred Stock were unchanged at $84,375 for the three months
ended December 31, 2005 and 2004.
15
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
TOTAL INVESTMENT INCOME
The Company's interest income for the six months ended December 31, 2005
increased $107,740 or 5% to $2,391,505 as compared to the six months ended
December 31, 2004, as a result of an increase in the average interest rates
charged on new and modified loans, which was partially offset by a reduction in
the overall loan portfolio
OPERATING EXPENSES
Interest expense for the six months ended December 31, 2005 increased
$302,298, or 38%, to $1,125,454 as compared to the six months ended December 31,
2004, due to higher interest rates charged on outstanding bank borrowing, which
was partially offset by a reduction in the outstanding banks notes payable.
Salaries and employee benefits increased $3,024, or 1%, as compared to the
similar period in the prior year. These increases resulted primarily from
increases specified in certain officers' employment agreements as well as
commissions paid to an employee. Professional fees decreased $114,802, or 35%,
as compared to the comparable period in the prior year, due primarily to a
reduction in Chicago legal fees. Foreclosure expenses increased $347 or 2% as
compared to the similar period in the prior year. Write off and depreciation of
interest and loans receivable decreased $255,435 or 65%, as compared to the
similar period in the prior year. The decrease in the amount of write-offs and
depreciation reflects the reduction of foreclosures of Chicago medallion loans.
Other administrative expenses decreased $33,844 or 6% as compared to the similar
period in the prior year, due primarily to a decrease in Chicago service fees
and computer expense.
NET LOSS
Net loss decreased from $(242,528) for the six months ended December 31,
2004 to $(38,443) for the six months ended December 31, 2005. The decrease in
net loss between the periods was attributable primarily to decreases in
salaries, professional fees and write off and depreciation of interest and loans
receivable, which more than offset the increase in interest expense. Dividends
for Participating Preferred Stock were unchanged at $168,750 for the six months
ended December 31, 2005 and 2004.
FINANCIAL CONDITION AT DECEMBER 31, 2005 AND 2004
BALANCE SHEET AND RESERVES
Total assets decreased by $1,564,124 as of December 31, 2005 from
$57,886,595 as of June 30, 2005. This decrease was primarily due to lower
outstanding loans receivable which is partially attributable to payoffs on
loans. In addition, Elk's proceeds from notes payable from banks for the quarter
were $5,615,713 versus $10,260,797 in repayments made on notes payable from
banks. This resulted in a $4,645,084 decrease in its short-term bank borrowings.
16
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations through private and public
placements of its securities, bank financing, the issuance to the SBA of its
subordinated debentures and internally generated funds.
On July 29, 2005, Ameritrans commenced a private offering of Common Stock
with warrants to "accredited investors," as that term is defined in Rule 501 of
Regulation D promulgated under the 1933 Act (the "Offering"). The shares of
Common Stock are being offered at a price no less than book value as of the date
of the Offering. For every four (4) shares of Common Stock purchased, the
Company will issue to the investor one (1) warrant, exercisable for five (5)
years from the date of issuance, to purchase one (1) share of Common Stock of
the Company at an exercise price equal to 110% of the purchase price of the
Shares. This Offering was previously approved by the requisite vote of
shareholders. The Offering is for maximum gross proceeds totaling $10 million.
The Offering period will expire on March 31, 2006. The Board of Directors
believe that raising additional capital pursuant to a private offering will
allow the Company to expand its investment portfolio and diversify the Company's
investments beyond the SBA-regulated loans and investments of Elk. This
diversification will provide the Company with the flexibility to participate in
a wide range of investment opportunities.
As of December 31, 2005, the Company issued 657,620 shares for gross
proceeds totaling $3,847,080, ($3,521,629 net of expenses). A total of 164,405
warrants to purchase shares of Common Stock were issued. Since December 31,
2005, the Company issued an additional 70,000 shares for additional gross
proceeds totaling $409,500. To date, the Company has raised approximately
$3,891,676, net of expenses.
On December 29, 2005, the Company distributed to shareholders a proxy
statement and invitation to a Special Meeting of Shareholders to be held on
January 23, 2005 (the "Meeting"). The Meeting was called to consider the
approval of an extension of the offering period of the Offering to March 31,
2006, which Offering period extension, if not approved by Shareholders, would
have expired on January 25, 2006. The extension of the Offering was approved at
the Meeting. For more information, please see the Company's definitive proxy
statement filed with the SEC on December 29, 2005 and the Company's press
release filed with the SEC on Form 8-K on January 24, 2005, both of which are
available online at www.sec.org.
17
At December 31, 2005, 68% of Elk's indebtedness was represented by
indebtedness to its banks and 32% by debentures issued to the SBA with fixed
rates of interest plus user fees resulting in rates ranging from 5.17% to
5.8750%. Elk currently may borrow up to $36,000,000, of which $10,874,432 was
available for draw down as of December 31, 2005 under its existing lines of
credit, subject to limitations imposed by its borrowing base agreement with its
banks and the SBA, the statutory and regulatory limitations imposed by the SBA
and the availability of funds. On January 2002, the Company and the SBA entered
into an agreement whereby the SBA committed to reserve debentures in the amount
of $12,000,000 to be issued to the Company on or prior to September 30, 2006. In
July and December 2002, debentures payable to the SBA were drawn from the
reserved pool of $12,000,000 in the amount of $2,050,000 and $3,000,000,
respectively. The interim interest rates assigned were 2.351% and 1.927%,
respectively, subsequently adjusted to long term fixed rates of 4.67% and 4.628%
determined on the pooling dates of September 25, 2002 and March 26, 2003,
respectively. On September 15, 2003 and February 17, 2004, two additional
debentures payable to the SBA were drawn in the amount of $5,000,000 and
$1,950,000, respectively. Interim interest rates assigned were 1.682% and
1.595%, respectively, subsequently adjusted to the long term fixed rate of 4.12%
on the pooling date of March 24, 2004. In addition to the fixed rates, there is
an additional annual SBA user fee on each debenture of 0.87% per annum making
the rates 5.54%, 5.498% and 4.99% before applicable amortization of points and
fees. The draw down in February 2004 was the final draw from the $12,000,000
commitment.
Loan amortization and prepayments also provide a source of funding for
Elk. Prepayments on loans are influenced significantly by general interest
rates, economic conditions and competition.
Like Elk, Ameritrans will distribute at least 90% of its investment
company taxable income and, accordingly, will continue to rely upon external
sources of funds to finance growth. In order to provide the funds necessary for
expansion, management expects to raise additional capital and to incur, from
time to time, additional bank indebtedness and (if deemed necessary) to obtain
SBA loans. There can be no assurances that such additional financing will be
available on acceptable terms.
18
NEW ACCOUNTING STANDARDS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123(R), "Share-Based Payment" ("SFAS 123(R)"), which replaced SFAS
No. 123, "Accounting for Stock-Based Compensation," and superseded APB Opinion
25, "Accounting for Stock Issued to Employees." SFAS 123(R) requires that all
share-based payments to employees be recognized in the financial statements
based on their fair values on the date of grant. The Company currently uses the
intrinsic value method to measure compensation expense for stock-based awards.
On April 14, 2005, the SEC amended the compliance dates for SFAS 123(R), which
extended the Company's required adoption date of SFAS 123R to its fiscal third
quarter in its fiscal year ended June 30, 2006. The Company is evaluating the
requirements of SFAS 123(R) and expects that its adoption will not have a
material impact on its financial position or results of operations.
Also in December 2004, the FASB issued Statement No. 153, Exchanges of
Nonmonetary Assets, ("SFAS No. 153") which addresses the measurement of
exchanges of non-monetary assets and eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive assets and replaces
it with an exception for exchanges that do not have commercial substance. SFAS
No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005, with earlier application permitted. Management
believes that the adoption of SFAS No. 153 has not had any impact on the
Company's results of operations or its financial position.
In June 2005, the FASB issued Statement No. 154, "Accounting Changes and
Error Corrections," ("SFAS No. 154") which changes the requirements for
accounting for and reporting of a change in accounting principle. SFAS No. 154
requires retrospective application to prior periods' financial statements of a
voluntary change in accounting principle unless it is impracticable. SFAS No.
154 also requires that a change in method of depreciation, amortization, or
depletion for long-lived, non-financial assets be accounted for as a change in
accounting estimate that is effected by a change in accounting principle. SFAS
No. 154 is effective for accounting changes and corrections of errors made a
fiscal years beginning after December 15, 2005, but does not change the
transition provisions of any existing accounting pronouncements, including those
that are in a transition phase as of the effective date of the Statement.
Management believes that the adoption of SFAS No. 154 has not had a material
effect on the Company's results of operations or its financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the Commission's rules and forms, and that such information is accumulated
and communicated to Management to allow timely decisions regarding required
disclosure based closely on the definition of "disclosure controls and
procedures" in Rule 13a-15(e) promulgated under the Exchange Act. In designing
and evaluating the disclosure controls and procedures, management recognizes
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control
19
objectives, and management necessarily is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
The Company's business activities contain elements of risk. The Company
considers the principal types of risk to be fluctuations in interest rates and
portfolio valuations. The Company considers the management of risk essential to
conducting its businesses. Accordingly, the Company's risk management systems
and procedures are designed to identify and analyze the Company's risks, to set
appropriate policies and limits and to continually monitor these risks and
limits by means of reliable administrative and information systems and other
policies and programs.
The Company values its portfolio of loans and investments at fair value as
determined in good faith by the Board of Directors in accordance with the
Company's valuation policy. Unlike certain lending institutions, the Company is
not permitted to establish reserves for loan losses. Instead, the Company must
value each individual investment and portfolio loan on a quarterly basis. The
Company records unrealized depreciation on investments and loans when it
believes that an asset has been impaired and full collection is unlikely.
Without a readily ascertainable market value, the estimated value of the
Company's portfolio of investments and loans may differ significantly from the
values that would be placed on the portfolio if there existed a ready market for
the investments and loans. The Company adjusts the valuation of the portfolio of
loans and investments quarterly to reflect the Board of Directors' estimate of
the current fair value of each investment and loan in the portfolio. Any changes
in estimated fair value of loans are recorded in the Company's balance sheet as
unrealized depreciation on loans receivable and also in the Company's statement
of operations as write off and depreciation on interest and loans receivable.
Any changes in estimated fair value of investments are recorded in the Company's
balance sheet as accumulated other comprehensive loss.
In addition, the illiquidity of our investments and loan portfolio may
adversely affect our ability to dispose of investments or loans at times when it
may be advantageous for us to liquidate such investments or loans. Also, if we
were required to liquidate some or all of these items in the portfolio, the
proceeds of such liquidation might be significantly less than the current value
of such investments or loans. Because we borrow money to make loans and
investments, our net operating income is dependent upon the difference between
the rate at which we borrow funds and the rate at which we loan and invest these
funds. As a result, there can be no assurance that a significant change in
market interest rates will not have a material adverse effect on our interest
income. As interest rates rise, our interest costs increase, decreasing the net
interest rate spread we receive and thereby adversely affect our profitability.
Although we intend to continue to manage our interest rate risk through asset
and liability management, including the use of interest rate swaps, general
rises in interest rates will tend to reduce our interest rate spread in the
short term.
20
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures as defined under
the Securities Exchange Act Rule 13a-15(e), that are designed to ensure that
information required to be disclosed in our periodic reports filed pursuant to
the rules promulgated under the Exchange Act are recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms and
that such information is accumulated and communicated to our management
including our Chief Executive Officer (also acting as Chief Financial Officer),
to allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives.
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer (also acting as Chief Financial Officer),
of the effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act.
Based on that evaluation, the Company concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures are
effective in timely communicating the material information required to be
included in our periodic SEC filings.
There were no changes to the Company's internal controls over financial
reporting as defined in Rule 13a-15(f) of the Exchange Act that occurred during
our most recently completed fiscal quarter that materially affected, or is
reasonably likely to materially affect our internal control over financial
reporting.
IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
Cautionary Note Regarding Forward-Looking Statements
This report, including, but not limited to, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," may contain certain
forward-looking statements within the meaning of the federal securities laws.
Some of the forward-looking statements can be identified by the use of forward-
looking words. When used in this report, statements which are not historical in
nature, including the words "anticipate," "may," "estimate," "should," "seek,"
"expect," "plan," "believe," "intend," and similar words, or the negatives of
those words, are intended to identify forward-looking statements. Statements
which also contain a projection of revenues, earnings (loss), capital
expenditures, dividends, capital structure or other financial terms are intended
to be forward-looking statements.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. In connection with
certain forward-looking statements contained in this Form 10-Q and those that
may be made in the future by or on behalf of Ameritrans, Ameritrans notes that
there are various factors that could cause actual results to differ materially
from those set forth in any such forward-looking statements. The forward looking
statements contained in this Form 10-Q were prepared by management and are
qualified by,
21
and subject to, significant business, economic, competitive, regulatory and
other uncertainties and contingencies, all of which are difficult or impossible
to predict and many of which are beyond the control of Ameritrans. Accordingly,
there can be no assurance that the forward-looking statements contained in this
Form 10-Q will be realized or that actual results will not be significantly
higher or lower. Readers of this Form 10-Q should consider these facts in
evaluating the information contained herein. In addition, the business and
operations of Ameritrans are subject to substantial risks which increase the
uncertainty inherent in the forward-looking statements contained in this Form
10-Q. The inclusion of the forward-looking statements contained in this Form 10-
Q should not be regarded as a representation by Ameritrans or any other person
that the forward-looking statements contained in this Form 10-Q, will be
achieved. In light of the foregoing, readers of this Form 10-Q are cautioned not
to place undue reliance on the forward-looking statements contained herein.
These risks and others that are detailed in this Form 10-Q and other documents
that Ameritrans files from time to time with the Commission, including quarterly
reports on Form 10-Q and any current reports on Form 8-K must be considered by
any investor or potential investor in Ameritrans.
22
PART II. OTHER INFORMATION
INFORMATION INCORPORATED BY REFERENCE. Certain information previously disclosed
in Part I of this quarterly report on Form 10-Q are incorporated by reference
into Part II of this quarterly report on Form 10-Q.
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceeding. From time
to time, the Company is engaged in various legal proceedings incident to the
ordinary course of its business. In the opinion of the Company's management and
based upon the advice of legal counsel, there is no proceeding pending, or to
the knowledge of management threatened, which in the event of an adverse
decision would result in a material adverse effect on the Company's results of
operations or financial condition.
ITEM 1A. RISK FACTORS
No change.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Please refer to Note 7 to the Consolidated Financial Statements in Part I for
discussion of the Company's Offering of July 29, 2005. The Company is not using
an underwriter in the Offering.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Please refer to Item 2 of Part I for a discussion of the Company's proxy
statement distributed to shareholders on December 29, 2005.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Exhibits filed as part of this report on Form 10-Q are listed on the Exhibit
Index immediately preceding such Exhibits, which Exhibit index is incorporated
by reference.
EXHIBIT INDEX
(A) EXHIBITS
3(i) Certificate of Incorporation (3)
3(ii) By-laws (3)
4 Form of subordinated debentures issued to the U.S. Small Business
Administration ("SBA") by Elk Associates Funding Corporation ("Elk") Debenture
issued March 26, 1997 - principal amount - $430,000; Maturity Date - March 1,
2007; Stated Interest Rate - 7.38%.(4)
The following debentures are omitted pursuant to Rule 483:
a. Debenture issued September 22, 1993 - principal amount
$1,500,000; Maturity Date - September 1, 2003; Stated Interest Rate - 6.12%.
b. Debenture issued September 22, 1993 - principal amount -
$2,220,000; Maturity Date - September 1, 2003; Stated Interest Rate - 6.12%.
c. Debenture issued September 28, 1994 - principal amount
$2,690,000; Maturity Date - September 1, 2004; Stated Interest Rate - 8.20%.
d. Debenture issued December 14, 1995 - principal amount
$1,020,000; Maturity Date - December 1, 2005; Stated Interest Rate - 6.54%.
e. Debenture issued June 26, 1996 - principal amount
$1,020,000; Maturity Date - June 1, 2006; Stated Interest Rate - 7.71%.
10.1 Security Agreement between Elk and the SBA, dated September 9, 1993.
(4)
10.3 1999 Employee Stock Option Plan. (5)
10.4 Non-Employee Director Stock Option Plan. (5)
10.5 Custodian Agreement among Elk; Bank Leumi Trust Company of New York
("Leumi"), Israel Discount Bank of New York ("IDB"), Bank Hapoalim B.M.
("Hapoalim") and Extebank; the SBA, and IDB as Custodian; dated September 9,
1993 (the "Custodian Agreement").(4)
10.6 Agreements between Elk and the SBA.(4)
10.7 Intercreditor Agreement among Elk, Leumi, IDB, Hapoalim, Extebank and
the SBA dated September 9, 1993 (the "Intercreditor Agreement") (4)
10.8 Amendments to the Custodian and Intercreditor Agreements. (4)
a. Amendment removing Hapoalim and Extebank and adding
European American Bank ("EAB"), dated September 28, 1994.
b. Form of Amendment adding bank:
i. Amendment adding United Mizrahi Bank and Trust
Company ("UMB"), dated June, 1995 was previously filed.
ii. Amendment adding Sterling National Bank and
Trust Company of New York ("Sterling"), dated April, 1996 - omitted pursuant to
Rule 483.
10.9 Bank Intercreditor Agreement among Elk, Leumi, IDB, Hapoalim and
Extebank, dated September 9, 1993 (the "Bank Intercreditor Agreement"). (4)
10.10 Amendments to the Bank Intercreditor Agreement. (4)
a. Amendment removing Hapoalim and Extebank and adding
European American Bank ("EAB"), dated September 28, 1994.
b. Form of Amendment adding bank:
i. Amendment adding UMB, dated June, 1995 was
previously filed.
ii. Amendment adding Sterling, dated April, 1996
omitted pursuant to Rule 483.
10.11 Letter Agreement renewing line of credit for Elk with IDB Bank dated
April 13, 2004.(6)
10.12 Promissory Note dated March 3, 2003 between Ameritrans and Bank Leumi
USA and Letter Agreement dated March 11, 2003 between aforementioned parties.
(6)
10.13 Master Note dated October 4, 1999 between Ameritrans and European
American Bank. (6)
10.14 Line of Credit Agreement dated January 3, 2002 between Elk and
Citibank. (7)
10.15 Form of indemnity agreement between Ameritrans and each of its
directors and officers. (3)
10.16 Amended and Restated Employment Agreement dated as of December 31,
2002 between Ameritrans and Gary Granoff. (8)
10.17 Amended and Restated Consulting Agreement dated as of December 31,
2002 between Ameritrans and Gary Granoff. (8)
10.18 Amended and Restated Employment Agreement dated as of December 31,
2002 between Ameritrans and Lee Forlenza. (8)
10.19 Employment Agreement dated as of October 1, 2001 between Ameritrans
and Ellen Walker. (9)
10.20 Employment Agreement dated as of January 1, 2002 between Ameritrans
and Silvia Mullens.(9)
10.21 Employment Agreement dated as of January 1, 2002 between Ameritrans
and Margaret Chance. (9)
10.22 Letter Agreement between Israel Discount Bank of New York and Elk dated
February 1, 2006 extending the line of credit.
10.23 Promissory Note dated December 31, 2005 between Ameritrans and Citibank
and Letter Agreement dated December 27, 2005 renewing the line of credit between
aforementioned parties.
10.24 Promissory Note dated December 19, 2005 between Ameritrans and Bank Leumi
USA and Letter Agreement extending the line of credit between aforementioned
parties.
22.1 Proxy statement on Schedule 14A mailed to shareholders on December 29,
2005 (1)
31.1 Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 USC Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(B) REPORTS ON FORM 8-K
On December 29, 2005, the Company filed a current report on Form 8-K reporting
under Item 8.01 that the Company issued a press release announcing a Special
Meeting of the Shareholders of the Company.
On December 22, 2005, the Company filed a current report on Form 8-K reporting
under Item 5.02 that the Company issued a press release regarding Board of
Director member resignations and appointment of new directors.
On December 20, 2005, the Company filed a current report on Form 8-K reporting
under Item 2.02 that the Company issued a press release announcing the
declaration of a quarterly dividend on its 9 3/8% Preferred Stock.
On December 6, 2005, the Company filed a current report on Form 8-K reporting
under Item 2.02 that the Company issued a press release announcing the initial
closing of the Company's private offering of common stock.
On November 15, 2005, the Company filed a current report on Form 8-K reporting
under Item 8.01 that the Company issued a press release announcing its first
quarter financial results of operations.
On October 18, 2005, the Company filed a current report on Form 8-K reporting
under Item 8.01 that the Company issued a press release announcing the Company's
completion of interest rate swaps.
(1) Incorporated by reference from the Registrant's Registrant's Schedule
14-A (File No. 811-08847) filed December 29, 2005.
(3) Incorporated by reference from the Registrant's Registration
Statement on Form N-14 (File No. 333-63951) filed September 22, 1998.
(4) Incorporated by reference from the Registrant's Registration
Statement filed on Form N-2 (File No. 333-82693) filed July 12, 1999.
(5) Incorporated by reference from the Registrant's Proxy Statement on
Form 14A (File No. 811-08847) filed on December 14, 2001.
(6) Incorporated by reference from the Registrant's 10-Q (File No. 811-
08847) filed May 14, 2004.
(7) Incorporated by reference from the amendment to the Registrant's N-2
(File No. 333-82693) filed March 1, 2002.
(8) Incorporated by reference from the Registrant's 10-Q (File No. 811-
08847) filed February 14, 2003.
(9) Incorporated by reference from the Registrant's 10-Q (File No. 811-
08847) filed February 14, 2002.
(All other items of Part II are inapplicable)
AMERITRANS CAPITAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERITRANS CAPITAL CORPORATION
Dated: February 14, 2006
By: /s/ Gary C. Granoff
Gary C. Granoff
President, Chief Executive Officer
and Chief Financial Officer
<page>
EXHIBIT 31.1
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
DISCLOSURE IN THE REGISTRANT'S QUARTERLY REPORT
I, Gary C. Granoff, President, Chief Executive Officer, and Chief Financial
Officer of Ameritrans Capital Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ameritrans Capital
Corporation (the "report");
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by the report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operation, and cash flows of the
registrant as of, and for, the periods presented in the report.
4. I am responsible for establishing and maintaining disclosure controls
and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to me by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal controls over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and
procedures,as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee
of the board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's
internal control over financial reporting.
Dated: February 14, 2006
/s/ GARY C. GRANOFF
--------------------------------------
GARY C. GRANOFF
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
<page>
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ameritrans Capital Corporation (the
"Company") on Form 10-Q for the quarter ended September 30, 2005, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Gary C. Granoff, President, Chief Executive Officer, and Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ GARY C. GRANOFF
- ----------------------------------------------
GARY C. GRANOFF
PRESIDENT, CHIEF EXECUTIVE OFFICER, AND CHIEF FINANCIAL OFFICER
February 14, 2006