AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 2003
Registration No. 333-82693
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2/A
|X| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
|_| PRE-EFFECTIVE AMENDMENT
|X| POST-EFFECTIVE AMENDMENT NO. 1
AMERITRANS CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
747 THIRD AVENUE, 4TH FLOOR, NEW YORK, NEW YORK 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES: NUMBER, STREET, CITY, STATE, ZIP CODE)
(212) 355-2449
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
GARY C. GRANOFF, AMERITRANS CAPITAL CORPORATION
747 THIRD AVENUE, 4TH FLOOR, NEW YORK, NEW YORK 10017
TEL. (212) 355-2449
FAX. (212) 759-3338
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH A COPY TO:
C. WALTER STURSBERG, JR.,
ESQ. STURSBERG & VEITH
405 LEXINGTON AVENUE, SUITE 4949
NEW YORK, NEW YORK 10174-4902
TEL. (212) 922-1177
FAX. (212) 922-0995
Approximate Date of Proposed Public Offering: From time to time after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis in reliance on Rule 415 under the Securities
Act of 1933, other than securities offered in connection with a dividend
reinvestment plan, check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
It is proposed that this filing will become effective |X| when declared
effective pursuant to Section 8(c).
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
EXPLANATORY NOTE
This Registration Statement covers the registration for resale of (i)
300,000 shares of common stock, par value $.0001 per share (the "Common Stock"),
of Ameritrans Capital Corporation ("Ameritrans"), issuable upon the exercise of
Warrants which were publicly issued pursuant to a unit offering Ameritrans
completed in April, 2002 (the "2002 Unit Offering"). In addition, we are also
registering for resale certain securities issuable upon exercise of the Unit
Purchase Option granted to the Company's underwriters. Under the terms of the
Unit Purchase Option, the underwriters have the right to purchase up to 30,000
units at an exercise price of $21.45 per unit (the "Underwriters' Unit(s)"),
each Unit of which is comprised of one share of Common Stock, one share of 9
3/8% participating preferred stock, face value $12.00 (the "Participating
Preferred Stock"), and one warrant exercisable at $8.40 into one share of Common
Stock (the "Underwriters' Warrants"). We are registering for resale (i) the
30,000 shares of Common Stock, (ii) the 30,000 shares of Common Stock issuable
upon the exercise of Underwriters' Warrants, and (iii) the 30,000 shares of
Participating Preferred Stock underlying the Underwriters' Units. Ameritrans is
required to keep current the registration statement registering the shares of
Common Stock underlying the Warrants and the Underwriters' Units. The
information in this Prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
AMERITRANS CAPITAL CORPORATION
CROSS-REFERENCE SHEET
PARTS A AND B OF PROSPECTUS*
ITEM ITEMS IN PARTS A AND B
NO. OF FORM N-2 LOCATION IN PROSPECTUS
- ---- ----------- ----------------------
1. Outside Front Cover........................... Front Cover Page
2. Inside Front and Outside Back Cover Page...... Front Cover Page and Outside Back Cover Page
3. Fee Table and Synopsis........................ Prospectus Summary--Fees an Expenses;
Additional Information
4. Financial Highlights.......................... Prospectus Summary--Summary Consolidated
Financial Data; Selected Financial Information;
Management's Discussion and Anofysis
Financial Condition and Results of Operations
5. Plan of Distribution.......................... Cover Page; Prospectus Summary; Underwriting
6. Selling Stockholders.......................... Not Applicable
7. Use of Proceeds............................... Use of Proceeds
8. General Description of the Registrant......... Cover Page; Prospectus Summary; Risk Factors;
Distributions; Price Range of Common Stock;
Management's Discussion and Anofysis
Financial Condition and Results of Operations;
Business; Investment Polic Financial
Statements
9. Management.................................... Management; Investment Policies
10. Capital Stock, Long Term Debt,
and Other Securities........................ Distributions; Price Range of Common Stock;
Business; Federal Income Tax Considerations;
Description of Capital Stock
11. Defaults and Arrears on Senior Securities..... Not Applicable
12. Legal Proceedings............................. Not Applicable
13. Table of Contents of the Statement of
Additional Information...................... Not Applicable
14. Cover Page.................................... Not Applicable
15. Table of Contents............................. Not Applicable
16. General Information and History............... Business
17. Investment Objective and Policies............. Business; Investment Policies
18. Management.................................... Management; Principal Stockholders
19. Control Persons and Principal Holders
of Securities............................... Principal Stockholders
20. Investment Advisory and Other Services........ Management; Experts; Investment Policies
21. Brokerage Allocation and Other Practices...... Not Applicable
22. Tax Status.................................... Federal Income Tax Considerations
23. Financial Statements.......................... Index to Financial Statements; Financial
Statements
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* Pursuant to the General Instructions to Form N-2, all information required
to be set forth in Part B: Statement of Additional Information has been
included in Part A: The Prospectus. All items required to be set forth in
Part C are set forth in Part C.
SUBJECT TO COMPLETION -- June 24, 2003
360,000 SHARES
AMERITRANS CAPITAL CORPORATION
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We are a specialty finance company that makes loans to small businesses
and, through our subsidiary, Elk Associates Funding Corporation, makes loans to
the owners of medallion taxi businesses in the Chicago, New York City, Miami,
and Boston markets and to other small businesses.
The Selling Securityholders described in this Prospectus are offering and
selling up to 300,000 shares of Common Stock, par value $.0001 per share, of
Ameritrans Capital Corporation, which may be sold upon the exercise of 300,000
publicly distributed warrants at the exercise price of $6.70 (the "Warrants"),
which were originally issued in connection with the Ameritrans public offering
of 300,000 units, completed in April, 2002.
In addition, we are also registering for resale certain securities
issuable upon exercise of the Unit Purchase Option granted to the Company's
underwriters. Under the terms of the Unit Purchase Option, the underwriters have
the right to purchase up to 30,000 units at an exercise price of $21.45 per unit
(the "Underwriters' Unit(s)"), each Underwriters' Unit of which is comprised of
one share of Common Stock, one share of 9 3/8% participating preferred stock,
face value $12.00 (the "Participating Preferred Stock"), and one warrant
exercisable at $8.40 into one share of Common Stock (the "Underwriters'
Warrants"). We are registering for resale (i) 30,000 shares of Common Stock,
(ii) 30,000 shares of Common Stock issuable upon the exercise of Underwriters'
Warrants, and (iii) 30,000 shares of Participating Preferred Stock, all of which
are underlying the Underwriters' Units.
Our Common Stock currently trades on the NASDAQ SmallCap Market under the
symbol "AMTC." On June 23, 2003, the last reported sale price of the Common
Stock was $4.92 per share.
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You are advised to read this Prospectus in its entirety and retain it for
future reference.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. AN INVESTMENT IN THESE SECURITIES SHOULD BE CONSIDERED ONLY BY PERSONS
CAPABLE OF SUSTAINING THE LOSS OF THEIR ENTIRE INVESTMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
The date of this Prospectus and the statement of additional information is
June , 2003.
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY U.S. FEDERAL SECURITIES LAWS TO OFFER TO SELL THESE SECURITIES
USING THIS PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM
UNTIL THE DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN
DECLARED EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING YOUR OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY........................................................... 1
USE OF PROCEEDS.............................................................. 15
DIVIDENDS.................................................................... 16
PRICE RANGE OF COMMON STOCK.................................................. 17
CAPITALIZATION............................................................... 18
SELECTED FINANCIAL INFORMATION............................................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................... 21
SENIOR SECURITIES............................................................ 27
BUSINESS..................................................................... 28
INVESTMENT POLICIES.......................................................... 40
MANAGEMENT................................................................... 41
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT.................. 47
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................... 50
REGULATION................................................................... 51
FEDERAL INCOME TAX CONSIDERATIONS............................................ 51
DESCRIPTION OF CAPITAL STOCK................................................. 55
WARRANTS..................................................................... 60
SHARES ELIGIBLE FOR FUTURE SALE.............................................. 61
PLAN OF DISTRIBUTION......................................................... 62
OFFERING BY SELLING SECURITYHOLDERS.......................................... 63
EXPERTS...................................................................... 63
LEGAL MATTERS................................................................ 64
ADDITIONAL INFORMATION....................................................... 64
INDEX TO FINANCIAL STATEMENTS............................................... F-1
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION CONTAINED IN OTHER PARTS OF
THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE UNITS. IN THIS
PROSPECTUS, UNLESS THE CONTEXT INDICATES OTHERWISE, "WE" MEANS AMERITRANS, ELK,
AND ANY OTHER SUBSIDIARIES AMERITRANS MAY ESTABLISH OR ACQUIRE, COLLECTIVELY.
"AMERITRANS" OR "ELK" MEANS EACH COMPANY ALONE. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY.
THE COMPANY
Ameritrans is a specialty finance company that makes loans to small
businesses and, through its subsidiary, Elk Associates Funding Corporation,
makes loans to the owners of medallion taxi businesses in the Chicago, New York
City, Miami, and Boston markets and to other small businesses. Ameritrans has
the same management as Elk and was formed in 1998 to acquire and operate Elk and
to engage in other specialty finance businesses, directly or through other
subsidiaries. From inception through April 2002, our only business activities
have been the operation of Elk. In May 2002, Ameritrans made its first loans to
businesses using the proceeds raised from the public offering which was
completed in April 2002. Our investment objectives are to achieve a high level
of distributable income, consistent with preservation of capital, as well as
long-term growth of net asset value.
Our management has successfully operated Elk since it began its taxi
medallion finance business in 1980. Taxi loans represented approximately 76% of
Elk's loan portfolio as of March 31, 2003. Elk has never experienced any
material losses of principal in connection with their taxi medallion lending
operations. The balance of Elk's loans have been made to other small businesses,
such as laundromats, dry cleaners, and automobile dealers, primarily in the New
York City metropolitan area and south Florida. The principal amounts of Elk's
loans typically range from $50,000 to $500,000. Elk's loan portfolio has
increased from $22,137,343 as of June 30, 1994, to $56,283,840 as of March 31,
2003.
Our business niche is small businesses that are often overlooked by banks,
other lenders and investors who have lengthy approval processes and frequently
will not consider making small loans. In contrast, we can quickly evaluate, and
make funds available to, small business borrowers. Further, because funding
resources accessible to such borrowers are limited, we can make loans at rates
that are favorable to us. As of March, 2003, the interest rates on Elk's
outstanding loans ranged from 6% to 18%, and the weighted average rate on Elk's
outstanding loans was 11%.
The average interest rate that we paid to our lenders for the period ended
March 31, 2003, was 4.75%. Because of our low overhead, low losses from taxi
loans, comparatively high loan rates and low cost of capital, we have been
profitable for 20 of the 21 years we have been in business. In the past year,
approximately 25% of our Chicago taxi loans defaulted to the point that a
foreclosure action was necessary to recover on our collateral. This was caused
by the economic slowdown suffered by the Chicago taxi market since September 11,
2001. As a result, the Company charged off principal and accrued interest due to
the foreclosure of Chicago medallion loans. (See "Collection Experience.")
Ameritrans and Elk have both elected to be treated as "regulated
investment companies," or "RICs," for tax purposes. An RIC will generally not be
subject to U.S. federal corporate income tax on its investment income to the
extent that it makes qualifying distributions of the income to stockholders. An
RIC qualifies for this treatment as long as it distributes at least 90% of its
investment company taxable income to stockholders as dividends. Both Ameritrans
and Elk are closed-end, non-diversified management investment companies that
have elected to be treated as business development companies under the
Investment Company Act of 1940 (the "1940 Act").
Ameritrans was incorporated in Delaware on February 12, 1998. Our
principal offices are located at 747 Third Avenue, 4th Floor, New York, New York
10017 and our telephone number is (212) 355-2449.
-1-
THE OFFERING
Common Stock registered for resale....................... 360,000 shares of Common Stock*
Shares of Common Stock Outstanding....................... 2,035,600*
Common Stock to be Outstanding
If all Warrants are Exercised.......................... 2,395,600
Participating Preferred Stock registered for resale...... 30,000 shares
Shares of Participating Preferred Stock outstanding...... 300,000 shares
Participating Preferred Stock to be outstanding
If all Underwriters' Units are exercised............... 330,000 shares
NASDAQ SmallCap Market Symbols........................... Common Stock--AMTC
Warrants--AMTCW
Participating Preferred Stock--AMTCP
Use of Proceeds.......................................... We will not receive any proceeds from the sale of
Common Stock by the Selling Securityholders selling
the Common Stock underlying the Warrants, although we
shall receive approximately $2,010,000 if all the
Warrants are exercised. We will also receive
approximately $895,500 if the Underwriters exercise
the Underwriters' Units and the Underwrites'
Warrants, which include (i) $643,500 from the
exercise of all 30,000 Underwriters' Units and (ii)
$252,000 from the exercise of all 30,000
Underwriters' Warrants. The proceeds from such
exercise will be used to fund our loan and
investment activities, including Elk's SBIC
investment portfolio and our expanded specialty
finance lending business to be conducted directly
by Ameritrans or through other subsidiaries. See
"Use of Proceeds."
Dividends................................................ Ameritrans pays quarterly cash dividends to the
holders of our Common Stock of at least 90% of our
investment company taxable income after payment of
preferred stock dividend. Most recently, Ameritrans
declared a dividend of $.10 per share based on
earnings for the period October 1 through December
31, 2002, which was paid on January 28, 2003, to
holders of record as of January 20, 2003. The
Company did not pay a dividend to holders of the
Common Stock for the quarter ended March 31, 2003.
Holders of shares of the Participating Preferred
Stock are entitled to receive, when, as, and if
declared by the Board of
- ----------------------
* The number of shares outstanding does not include 200,000 shares
authorized under our 1999 Employee Incentive Stock Option Plan, pursuant
to which options to purchase 100,000 shares have been granted to date. It
also does not include 75,000 shares authorized under our Non-employee
Director Stock Option Plan, pursuant to which, options to purchase 22,224
shares have been granted to date. See "Management -- Stock Option Plans."
-2-
Directors of Ameritrans out of funds legally
available therefor, cumulative cash dividends at
the annual rate of 9 3/8% per share of the face
value of $12.00 per share payable to the holders of
record on March 31, June 30, September 30 and
December 31 in each year (each a "Record Date").
The dividends are payable within 20 days after each
Record Date, commencing with the June 30, 2002
Record Date; provided however, no dividends will be
paid if Ameritrans is unable to maintain an asset
coverage of 200%. Most recently, Ameritrans
declared a dividend of $0.28125 per share of
Participating Preferred Stock for the period
April 1, 2003 through June 30, 2003, which is payable
to holders of record as of June 30, 2003, on July 15,
2003. Ameritrans declared a dividend of $0.28125 for
the period January 1, 2003 through March 31, 2003,
which was paid to holders of record as of March 31,
2003, on April 10, 2003. See "Dividends" and "Asset
Coverage."
Asset Coverage........................................... For so long as any shares of Participating
Preferred Stock are outstanding, the Company will
be required to maintain, prior to the declaration
of any dividend, asset coverage of at least 200%,
calculated after deducting the amount of such
dividend, which is the asset coverage required by
Section 18 of the Investment Company Act of 1940,
as amended (the "1940 Act").
Voting Rights............................................ At all times holders of shares of Participating
Preferred Stock and any other Preferred Stock
entitled to vote for the election of directors will
be entitled to elect two members of Ameritrans'
Board of Directors, and holders of shares of
Participating Preferred Stock, any other Preferred
Stock, and Common Stock, voting as a single class,
will elect the remaining directors. However, upon a
failure by Ameritrans to pay dividends on the
Participating Preferred Stock and/or any other
Preferred Stock in an amount equal to two full
years' dividends, holders of shares of
Participating Preferred Stock, voting as a separate
class with any other outstanding shares of
Preferred Stock of Ameritrans, will have the right
to elect the smallest number of directors that
would constitute a majority of the directors until
cumulative dividends have been paid or provided
for.
Holders of shares of Participating Preferred Stock
and any other Preferred Stock will vote together as
one class on certain other matters, as required
under Ameritrans' Certificate of Designations, the
1940 Act, and Delaware law. Except as otherwise
indicated in this Prospectus and as otherwise
required by applicable law, holders of shares of
Participating Preferred Stock will be entitled to
one vote per share on each matter submitted to a
vote of stockholders and will vote together with
holders of shares of Common Stock and any other
Preferred Stock as a single class. See "Description
of Participating Preferred Stock--Voting Rights."
-3-
FEES AND EXPENSES
Because Ameritrans is a closed-end management investment company, we are
required to include the following table in this Prospectus. The purpose of the
table is to assist securityholders in understanding the various costs and
expenses that securityholders of Ameritrans bear, directly or indirectly.
FEE TABLE(1)
ANNUAL EXPENSES (as a percentage of net assets attributable to Common Stock)(2)
Interest Payments on Borrowed Funds(3).......................................................... $2,137,500
Operating Expenses(4)........................................................................... 3,518,000
-----------
Total Annual Expenses...................................................................... $5,655,500
==========
Total Annual Expenses as a percentage of net assets attributable to Common Stock..................... 37.0%
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(1) Based on estimated amounts for the current fiscal year.
(2) Assumes a net asset value of $6.38 per common share upon the exercise of
all the Warrants based on an adjusted stockholders' equity of $15,275,321
(see "Dilution"). Operating expenses, interest payments on borrowed funds,
and other expenses are calculated on an annualized basis based on our
operations for the period beginning July 1, 2002 and ended June 30, 2003.
(3) Interest payments on borrowed funds consist primarily of interest payable
under credit agreements with banks and on subordinated SBA debentures.
Assumes $45 million in average debt outstanding at an average cost of
funds of 4.75% resulting in an estimated interest payment of $2,137,500.
See "Business -- Sources of Funds."
(4) Operating expenses consist primarily of general and administrative
expenses, including compensation and employee benefits, professional fees,
rent, travel and other marketing expenses, and various costs associated
with collections. Based on our operations for the nine months ended March
31, 2003, operating expenses calculated on an annualized basis are
estimated at $3,518,000 for the year ended June 30, 2003. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Results of Operations, Operating Expenses."
EXAMPLE:
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in Ameritrans. These amounts assume no increase or
decrease in leverage and payment by us of operating expenses at the levels set
forth in the table above.
An Ameritrans securityholder would pay the following expenses on a $1,000
investment, assuming a 5% annual return:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$389 $450 $496 $633
This example, as well as the information set forth in the table above,
should not be considered a representation of our future expenses. Actual
expenses may be greater or less than those shown. Moreover, while the example
assumes (as required by the Securities and Exchange Commission) a 5% annual
return, our performance will vary and may result in a return greater or less
than 5%. In addition, the example assumes reinvestment of all dividends and
distributions at net asset value.
-4-
SUMMARY CONSOLIDATED FINANCIAL DATA
On December 16, 1999, Ameritrans acquired Elk in a share-for-share
exchange. Prior to the acquisition, Elk had been operating independently and
Ameritrans had no operations.
The tables below contain certain summary historical financial information
of Ameritrans and Elk. You should read these tables in conjunction with the
consolidated financial statements of Ameritrans (the "Financial Statements")
included elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
FISCAL YEAR ENDED JUNE 30,
STATEMENT OF OPERATIONS DATA 2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Investment Income ................................... $ 6,269,719 $ 6,439,792 $ 6,602,397 $ 5,583,894 $ 4,606,456
----------- ----------- ----------- ----------- -----------
Interest Expense .................................... 2,632,918 3,392,202 3,345,526 2,498,284 1,840,731
Other Expenses ...................................... 2,512,844 2,065,724 2,528,806 1,844,949 1,852,262
----------- ----------- ----------- ----------- -----------
Total Expenses ...................................... 5,145,762 5,457,926 5,874,332 4,343,233 3,692,993
----------- ----------- ----------- ----------- -----------
Operating Income Before Loss on Assets
Acquired in Satisfaction of Loans ................ 1,123,957 981,866 728,065 1,240,661 913,463
----------- ----------- ----------- ----------- -----------
Loss on Assets Acquired in Satisfaction of Loans, net (78,907) (122,912) (61,546) (11,272) (14,649)
Other Income (Expense) .............................. 2,700 (276,549) (440,196) 7,200 38,798
Benefit of (Provision for) Income Taxes(1) .......... (8,854) (7,896) (13,571) 769 (3,271)
----------- ----------- ----------- ----------- -----------
Net Income .......................................... $ 1,038,896 $ 574,509 212,752 $ 1,237,358 $ 934,341
----------- ----------- ----------- ----------- -----------
Dividends on Preferred Stock ........................ (68,438) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net Income Available To Common Stockholders ......... $ 970,458 $ 574,509 $ 212,752 $ 1,237,358 $ 934,341
----------- ----------- ----------- ----------- -----------
Net Income Per Common Share (basic and diluted) ..... $ .54 .33 $ .12 $ .71 $ .62
----------- ----------- ----------- ----------- -----------
Common Stock Dividends Paid Per Common Share ........ $ .54(3) $ .39(2) $ .72 $ .72 $ .65
----------- ----------- ----------- ----------- -----------
Weighted Average Shares of Common Stock Outstanding . 1,800,614 1,745,600 1,745,600 1,745,600 1,518,969
----------- ----------- ----------- ----------- -----------
Net change to accumulated other comprehensive income $ (43,612) $ (123,364) $ (124,319) $ 62,964 $ 140,548
=========== =========== =========== =========== ===========
Nine Months Ended March 31,
---------------------------
2003 2002
---- ----
(Unaudited)
STATEMENT OF OPERATIONS DATA
Investment Income ...................................................... $ 4,744,787 $ 4,637,439
----------- -----------
Interest Expense ....................................................... 1,622,264 2,025,435
Other Expenses ......................................................... 2,565,962 1,679,450
----------- -----------
Total Expenses ......................................................... 4,188,226 3,704,885
----------- -----------
Operating Income Before Loss on Assets Acquired in Satisfaction of Loans 556,561 932,554
----------- -----------
Loss on Assets Acquired in Satisfaction of Loans, net .................. (72,464) (64,660)
----------- -----------
Other Income (Expense) ................................................. -- --
----------- -----------
Benefit of (Provision for) Income Taxes(1) ............................. (15,926) (7,596)
----------- -----------
Net Income ............................................................. $ 468,171 $ 860,298
----------- -----------
Dividends on Preferred Stock ........................................... (253,125) --
----------- -----------
Net Income Available To Common Shareholders ............................ $ 215,046 $ 860,298
----------- -----------
Net Income Per Common Share (basic and diluted) ........................ $ .11 $ .49
----------- -----------
Common Stock Dividends Paid Per Common Share ........................... $ .21 $ .49
----------- -----------
Weighted Average Shares of Common Stock Outstanding .................... 2,035,600 1,745,600
----------- -----------
Net change to accumulated other comprehensive income ................... $ -- $ --
----------- -----------
JUNE 30, 2002 MARCH 31, 2003
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(UNAUDITED) AS ADJUSTED(4)
BALANCE SHEET DATA
Total assets......................................... $ 59,008,216 $61,958,186 $61,958,186
Notes payable and demand notes....................... 33,720,000 35,780,000 32,874,500
Subordinated SBA debentures.......................... 7,860,000 9,200,000 9,200,000
Total liabilities.................................... 42,341,135 45,628,365 42,722,865
Total stockholders' equity........................... 16,667,081 16,329,821 19,235,321
Less Preferred Stock................................. (3,600,000) (3,600,000) (3,960,000)
Adjusted stockholders' equity per Common Stock....... $ 13,067,081 $12,729,821 $15,275,321
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(1) Elk, since the fiscal year ended June 30, 1984, and Ameritrans have
elected and qualified to be taxed as a regulated investment company, and
substantially all taxable income was required to be distributed to
stockholders. Therefore, only minimal taxes were required to be paid.
-5-
(2) Includes a dividend of $.085 per share for the quarter ended June 30,
2001, which was declared on October 11, 2001 and was paid to stockholders
on October 31, 2001.
(3) Includes a dividend of $.06 per share for the quarter ended June 30, 2002,
which was declared on September 26, 2002 and was paid to stockholders on
October 16, 2002.
(4) This column shows the effect of the exercise of 300,000 Warrants, 30,000
Underwriters' Units, and 30,000 Underwriters' Warrants in this Offering
and our application of the proceeds of approximately $2,905,500 if all
Warrants, Underwriters' Units, and Underwriters' Warrants are exercised.
See "Use of Proceeds" and "Capitalization."
RISK FACTORS
IN ADDITION TO OTHER MATTERS DESCRIBED IN THIS DOCUMENT, INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING FACTORS:
OUR BUSINESS IS AFFECTED BY TAXI INDUSTRY CONDITIONS AND REGULATIONS.
As of March 31, 2003, approximately 76% of Elk's outstanding loans were to
finance the ownership of taxi medallions, taxis and related assets. The taxi
industry, and the ability of taxi owners to qualify for and repay loans may be
subject to factors that we cannot predict or control, such as the following:
o Taxi medallions are the main component of the collateral for the
loans that we make to taxi owners. Local governments in New York
City and other cities have traditionally issued a limited number of
taxi medallions. This generally has had the effect of increasing the
value of the existing medallions, although there have been periods
when the value of medallions has remained stable or declined. If the
number of medallions available in any city is significantly
increased, the value of both the new and outstanding medallions may
decrease which, in turn, would decrease the value of the collateral
for our loans. New York City has, in fact, proposed selling an
additional 900 medallions over the next three years. Historically,
New York City auctions of new medallions have not had a material
impact on the price of medallions.
o Taxi fare rates and regulations are generally set by local
government agencies, and rates may remain fixed at a time when
operating expenses are increasing. As a consequence, in the short
term, taxi operators may find it more difficult to cover their
expenses and to service their loans from us. This could adversely
affect the collectability of our loans and the value of our
collateral.
WE MAY BE NEGATIVELY AFFECTED BY ANY DOWNTURN IN LOCAL ECONOMIC CONDITIONS.
Any downturn in local economic conditions in our geographic markets could
decrease the demand for taxi services. Since the tragedy of September 11, 2001,
we now recognize that local economic conditions can be severely effected by
terrorist attacks. If economic conditions do deteriorate, taxi owners who
currently have loans from Elk could find it more difficult to repay their loans
and the value of the medallions, the taxis and the other assets securing those
loans could be diminished.
As of March 31, 2003, approximately 76% or $42,634,016 of Elk's
outstanding loans were to taxi operators and 24% or $13,649,824 to other small
businesses. 90% or $620,978 of Ameritrans' outstanding loans were to other small
business and 10% or $69,176 represents Ameritrans' only taxi medallion loan. We
cannot be sure that we will be able to sufficiently diversify our operations
geographically or that an economic downturn in Chicago or New York City would
not adversely affect our business. See "Business."
-6-
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY.
We compete with many other lenders, such as banks, credit unions, finance
companies and other SBICs, that offer loans to owners of taxi medallions and
other small businesses. Many of our competitors, including certain other lenders
that specialize in making loans to the taxi industry, are significantly larger
than we are and may, as a result, be able to obtain more favorable terms from
their financing sources than we can obtain from our banks. If our competitors
can lend at rates lower than we can, we will be at a competitive disadvantage.
We also will be competing with lenders who may have significantly more expertise
in evaluating small businesses in other industries and providing managerial
assistance to borrowers, which may make them more attractive to potential small
business borrowers. In addition, some of our competitors are subject to
different and in some cases less stringent regulation than we are.
THE CONTINUATION AND EXPANSION OF OUR BUSINESS IS DEPENDENT UPON THE
AVAILABILITY OF BANK FINANCING.
We have a continuing need for capital to finance our lending activities.
We fund our operations through credit facilities with bank syndicates and, to a
lesser degree, through subordinated SBA debentures. Our business is dependent on
our ability to continue to borrow funds from banks or the SBA on favorable
terms. Because we distribute to our stockholders at least 90% of our investment
company taxable income, these earnings are not available to us to fund loans to
our customers.
As its operations have expanded, Elk has increasingly relied upon bank
financing for the funds it uses to make loans. Elk currently has three bank
lines of credit aggregating $40,000,000. Under these lines of credit, Elk may
borrow up to $40,000,000 at varying interest rates. As of March 31, 2003, Elk
had $35,780,000 of bank loans outstanding. See "Selected Financial Information."
Under a 1993 agreement with the SBA (the "SBA Agreement"), Elk is
permitted to borrow from its lenders, which include banks and the SBA, up to 80%
of its "working assets," (and temporarily, through March 31, 2002, up to 85% of
"working assets") which are computed quarterly under a formula that takes into
account Elk's capital and the value of Elk's loans and investments. As of March
31, 2003, Elk's aggregate indebtedness to the SBA was $9,200,000, representing
approximately 15% of its total assets as of that date. In January, 2002 Elk
received a financing commitment from the SBA in the form of $12.0 million in
debentures. The commitment expires on September 30, 2006, and would permit Elk
to make debenture drawdown requests to the SBA periodically. Elk has already
made two debenture drawdowns from this commitment: $2,050,000 in July 2002 and
$3,000,000 in December 2002. Ameritrans will also seek to raise additional
capital from its banks. No assurances can be given, however, that it will obtain
such additional leverage.
Because Ameritrans is not an SBIC, it will not be able to obtain any
funding from the SBA. We expect to fund the activities we propose to undertake
directly or through subsidiaries other than Elk by utilizing the proceeds raised
from the exercise of the Warrants, Underwriters' Units, and Underwriters'
Warrants, and by establishing bank lines of credit. We do not currently have
commitments from any banks for any additional lines of credit, and we cannot
predict whether we will be able to arrange lines of credit on acceptable terms
or if the funds available to us will be sufficient to make acquisitions or
otherwise expand our operations or to engage in activities at a level that will
enable us to continue to operate profitably. See "Business -- Sources of Funds."
OUR PROFITABILITY MAY DECREASE IF THE DIFFERENCE BETWEEN THE INTEREST RATES WE
PAY AND THE INTEREST RATES WE CHARGE DECREASES.
We can achieve a profit on borrowed funds only if there is a sufficient
spread between the interest rates we are charged for the funds we borrow and the
interest rates we charge our borrowers. If the interest rates we pay rise, our
cost of funds will increase while the rates our borrowers pay remain fixed, and
our profitability could decrease. To partially contain this risk, we have
purchased interest rate caps and Swaps. While these limit our exposure to rising
interest rates, they initially increase the effective interest rates that we pay
on loans subject to the caps or swaps.
-7-
Furthermore, the loans we make typically may be prepaid by the borrower
upon payment of certain prepayment charges. A borrower is likely to exercise
prepayment rights at a time when the interest rate payable on the borrower's
loan is higher than prevailing interest rates. If lower interest rates are
available, we may have difficulty re-lending any prepaid funds at comparable
rates. If borrowers elect to refinance loans previously made at higher interest
rates and our interest costs are not correspondingly reduced, our profits from
the refinanced rates would be lower.
At March 31, 2003, our outstanding debt was as follows:
o Elk had $35,780,000 outstanding under credit lines from its banks,
secured by all of its assets and bearing interest based on the Elk's
choice of the lower of either the reserve adjusted LIBOR rate plus
150 basis points or 1/2% below the banks' prime rates plus certain
fees. At March 31, 2003, our bank debt was floating at 1.5% above
LIBOR. From time to time in order to protect the Company from upward
movements in interest rates, Elk purchases separate interest rate
Swap contracts. $15,000,000 of our debt was subject to an interest
rate Swap purchased in June of 2001 (amended subsequently to an
effective date of August 13, 2001), which matures June of 2003, at
an effective fixed rate of 6.45%. In February 2003, Elk purchased
another interest rate Swap contract for $5,000,000 at an effective
rate of 3.56%. The revolving lines of credit mature through October
and November 2003.
o Elk had $9,200,000 outstanding under subordinated SBA debentures,
with interest at fixed annual rates ranging from 5.49% to 8.38% and
maturities ranging from September, 2003, to March 2013.
The average interest rate that we paid to our lenders was 4.75%. Based
upon that rate, we must achieve annual returns on investments of at least 3.8%
to cover our total annual interest payments. See "Business -- Source of Funds."
LEVERAGE MAY INCREASE THE VOLATILITY OF OUR NET ASSET VALUE AND THE MARKET PRICE
OF OUR SECURITIES.
Leverage poses certain risks for our securityholders, including possible
higher volatility of both our net asset value and the market price of our
securities, due to the following factors, among others:
o Since we must pay interest to our lenders before we can distribute
any income to our securityholders, fluctuations in the interest
rates payable to the lenders affect the yield to our
securityholders. Income we earn from operations and from lending the
proceeds of the funds we borrow must exceed the interest we must pay
on such borrowed funds in order for there to be income available for
distribution to securityholders.
o The high rate of distribution of investment company taxable income
required to maintain our tax status as an RIC limits the funds that
can be retained in the business to cover periods of loss, provide
for future growth and pay for extraordinary items.
o In the event of a liquidation, our lenders and other creditors would
have to be paid before any distribution could be made to our
securityholders.
The following table illustrates the effect of leverage to a
securityholder, assuming our cost of funds at March 31, 2003, as described above
and various annual rates of return, net of expenses. The calculations set forth
in the table are hypothetical and actual returns may be greater or less than
those appearing below:
Assumed return on investments (net of expenses)(1)........ -10% -5% 0% 5% 10%
Corresponding net income to common stockholders(1)........ -51% -32% -13% 6% 25%
- -----------------
(1) Assumes (i) $62 million in average assets, (ii) an average cost of funds
of 4.75%, (iii) $45 million in average debt outstanding and (iv) $16.5
million of average stockholders equity.
-8-
WE MAY EXPERIENCE LOSSES IN CONNECTION WITH FORECLOSURES ON TAXI LOANS.
In Chicago, the market price for medallions dropped approximately 15%
during the fiscal year ended June 30, 2001, and thereafter has remained
relatively unchanged. As of the date of this Prospectus, medallions are selling
for approximately $50,000 to $60,000 per medallion, but we are selling our
foreclosed medallions in Chicago for $58,000 with full financing for the
Purchaser. In New York City, medallion prices dropped from $223,000 in July,
2000 for individual medallions to $200,000 as of September, 2002. Prices for
individual medallions increased to $223,000 by May 2003. Prices in New York for
corporate medallions fell from $257,000 per medallion in July, 2000 to $230,000
in September, 2002, and have since risen to $262,000 per medallion by May 2003.
We believe that the collateral securing our loans is adequate. We have never
experienced a material loss of principal in connection with a taxi medallion
financing other than the Chicago taxi loans defaults which primarily have
occurred in the past year. In the event of a foreclosure, we cannot be sure that
we will be able to recoup all or a portion of a loan, and the costs of
foreclosure proceedings could also reduce our recovery. In the past year,
approximately 25% of our Chicago taxi loans defaulted requiring the Company to
commence foreclosure proceedings. When the tragic events of September 11, 2001
occurred, the Chicago market was in the process of absorbing 1,000 new
medallions that had been sold by the city over the past three years. As a result
of the increase in supply of medallions and the reduction in demand for service,
and corresponding reduction in revenues by taxi operators, the Company, as well
as other lenders in the Chicago taxi medallion lending market, experienced a
greater rate of default in their Chicago loan portfolio than they had
previously. As a result, the Company charged off principal and accrued interest
due to foreclosed Chicago medallion loans, and was required to pay substantial
foreclosure expenses to liquidate and resell the collateral. (See "Collection
Experience.")
OUR BORROWERS FOR NON-TAXI, DIVERSIFIED LOANS ARE SMALL BUSINESSES THAT HAVE
LIMITED FINANCIAL AND PERSONAL RESOURCES.
Elk's non-taxi, diversified loans are not guaranteed by the SBA, and its
borrower base consists primarily of small business owners who have limited
resources. There is generally no publicly available information about such small
business owners, and these small businesses are unlikely to have audited
financial statements. Consequently, we must base our credit decisions on the
information our employees and agents are able to obtain. Typically, the success
of small businesses and their ability to repay our loans are dependent upon the
talents and efforts of one person or a small group of persons, and the death,
disability or resignation of one or more of these persons could have a serious
effect on their business and make it more difficult for them to repay our loans.
Moreover, small businesses may be more vulnerable to economic downturns and
often need substantial additional capital to expand or compete. Such companies
may also experience substantial variations in operating results.
WE HAVE EXPERIENCED LOSSES IN CONNECTION WITH OUR DIVERSIFIED LOANS, AND WE MAY
BE REQUIRED TO INCREASE OUR RESERVES IN THE FUTURE.
Elk has in the past realized losses of principal on its diversified loans.
These loans typically carry more risk than taxi loans because the loan
collateral is generally not as valuable or liquid as the medallions and taxis
that are the collateral for taxi loans. Consequently, as we increase our
non-taxi diversified loans, our risk of losses of principal may increase. We
must continuously review our loan portfolio to assess the performance of all our
loans. Losses in connection with any type of loan might require us to adjust the
market valuation of our loan portfolio and increase our reserves.
THE RISKS OF LOANS AND INVESTMENTS IN OTHER SMALL BUSINESS BORROWERS MAY BE
GREATER THAN THE RISKS OF TAXI LOANS.
Elk has historically made a smaller percentage of its loans to non-taxi
businesses than to taxi operators, but we intend to increase Elk's loans to
small non-taxi businesses. At March 31, 2003, Elk's loans to small non-taxi
businesses were approximately 24% of its loan portfolio. In addition, Ameritrans
started to make non-taxi loans in May, 2002. The risks affecting the
collectability of loans to taxi operators in major cities are unlikely to
dramatically change in the foreseeable future or to vary substantially from
region to region. However, factors affecting the potential for success of other
types of small businesses and the risks of making loans to such businesses are
likely to be very different from
-9-
those that affect the operation of a taxi business and may vary significantly
from industry to industry and from region to region.
Our non-taxi, diversified loans are secured by collateral which typically
includes personal guarantees, mortgages on real estate, and/or a security
interest in personal property. Although we make substantial efforts to
collateralize our non-taxi, diversified loans to the greatest extent possible,
the collateral on these loans is, in our experience, not as liquid as our
security interest in the taxi medallions we acquire in connection with our
financing of loans to taxi owners. Furthermore, the collateral often does not
fully cover the amount of the underlying indebtedness. Any portion of the loan
not recovered by the enforcement of personal guarantees or through the sale of
the underlying collateral would be a loss and would result in a charge to our
earnings. Further, foreclosures on real estate mortgages or proceedings to
enforce our rights under loan guarantees invariably require more time and are
more costly than foreclosing on taxi medallions.
In addition to the risks related to the value of the collateral securing
these loans, such risks may include:
o The location of the potential borrower.
o The business experience of the borrower's management.
o The competition faced by the borrower.
o The effect of local, national and international economic conditions
on the business prospects of the borrower.
o The short-term and long-term capital and personnel requirements of
the borrower's business.
o The potential effect of changes in technology on the borrower's
business.
Consequently, if we commit a significant portion of our available funds to
businesses in other industries, our profitability may be decreased if the risks
affecting the operations of our borrowers are greater than we anticipated.
VARIOUS FACTORS MAY NEGATIVELY AFFECT OUR PORTFOLIO VALUATION.
Under the 1940 Act, our loan portfolio must be recorded at fair market
value or "marked to market." Unlike certain lending institutions, we are not
permitted to establish reserves for loan losses, but adjust quarterly the
valuation of our portfolio to reflect our estimate of the current realizable
value of the loan portfolio. Since no ready market exists for this portfolio,
fair market value is subject to the good faith determination of our management
and the approval of our Board of Directors. In determining such value, the
directors may take into consideration various factors such as the financial
condition of the borrower, the adequacy of the collateral and interest rates.
For example, in a period of sustained increases in market rates of interest, the
Board of Directors could decrease its valuation of the portfolio because the
portfolio consists primarily of fixed-rate loans. These fair valuation
procedures are designed to approximate the value that would have been
established by market forces and are therefore subject to uncertainties and
variations from reported results. Based on the foregoing criteria, we determine
net unrealized depreciation or appreciation of investments, or the amount by
which our estimate of the current realizable value of our portfolio is above or
below its cost basis. As of March 31, 2003, our loan portfolio was recorded on
the balance sheet at fair market value, which included $238,500 of net
unrealized depreciation, as estimated in accordance with the 1940 Act.
Based upon current market conditions and current loan to value ratios, the
Board of Directors believes that the net unrealized depreciation of investments
is adequate to reflect the fair market value of the portfolio. However, if
interest rates increase, net unrealized depreciation of investments could
increase, and net increase in net assets resulting from operations could
decline. Because of the subjectivity of these estimates, there can be no
assurance that in the event of a foreclosure or in the sale of portfolio loans,
we would be able to recover the amounts reflected on our balance sheet. Further,
costs associated with foreclosure proceedings, such as a 5% New York City
transfer tax assessed in connection with every medallion transfer, may reduce
our expected net proceeds. See "Business -- Loan Portfolio; Valuation."
-10-
WE RELY, IN PART, ON SBA FINANCING.
At March 31, 2003, $9,200,000 or 20%, of Elk's outstanding debt consisted
of subordinated SBA debentures, and we intend to continue to seek to finance a
portion of Elk's business through SBA funding programs. The continued
availability of funds from the SBA will be subject to various factors beyond our
control, including the following:
o The financing that the SBA makes available to SBICs is limited.
o The amount of financing Elk would be eligible to receive from the
SBA is calculated using a formula that nets certain expenses and
adjustments from Elk's capital.
During 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 2.5% leverage fee
will be deducted pro rata as the commitment proceeds are drawn down, of which a
$120,000 non-refundable fee has been paid by the Company.
o SBA financing may be restricted in its application. The SBA has
determined that due to its concerns regarding the concentration of
SBIC loans in the taxi industry and the o vailability of private
capital to finance taxi related businesses, additional SBA financing
may not be made available to certain SBICs for such loans.
WE WILL BE DEPENDENT ON DIVIDENDS FROM ELK AND ANY FUTURE SUBSIDIARIES FOR OUR
OPERATING INCOME AND CASH FLOW.
We are a holding company and we derive and will derive most of our
operating income and cash flow from our subsidiaries. Currently, we derive our
income from both Ameritrans and Elk. While we have begun to make loans to
businesses using the proceeds raised from our Unit Offering completed in April,
2002, such activity has been, to date, limited. As a result, we rely upon
distributions from Elk to generate the funds necessary to make dividend payments
and other distributions to our stockholders. Funds are provided to us through
dividends, but there can be no assurance that Elk or any other subsidiaries will
be in a position to continue to make such dividend payments. See "Business" and
"Distributions."
WE WILL CONTINUE TO QUALIFY FOR TAX TREATMENT AS A REGULATED INVESTMENT COMPANY
ONLY IF OUR ACTIVITIES COMPLY WITH CERTAIN PROVISIONS OF THE TAX LAW.
RISKS ASSOCIATED WITH DISTRIBUTION REQUIREMENTS AND LEVERAGE
Ameritrans and Elk have each qualified as a regulated investment company
(an"RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code") and intend to continue to so qualify. In any year
in which these companies qualify under Subchapter M, they generally will not be
subject to federal income tax on investment company taxable income (which
includes, among other things, dividends and interest reduced by deductible
expenses) that they distribute to stockholders, provided they distribute at
least 90% of the investment company taxable income to their stockholders. In
addition to the distribution requirement, to qualify as RICs, Elk and Ameritrans
must also meet certain income and diversification requirements.
However, the 1940 Act contains certain asset coverage ratio requirements
applicable to investment companies that use leverage, as both Elk and Ameritrans
do. Because Elk is an SBIC, it is exempt from these requirements, but Ameritrans
will be subject to them. These asset coverage requirements could, under certain
circumstances, prohibit Ameritrans from making distributions that are necessary
to maintain RIC status. In addition, the asset coverage and distribution
requirements limit our ability to retain earnings, establish loss reserves,
provide for future growth, and pay for extraordinary items, such as the
repayment of debt principal. Qualification as an RIC under Subchapter M is
determined on an annual basis and, although Ameritrans and Elk are currently
qualified as RICs, we cannot be sure that they will each continue to qualify for
such treatment. If they were to elect not to be treated as RICs, or were to fail
to qualify for RIC status for any reason, their respective incomes would become
fully taxable, and a substantial reduction
-11-
in the amount of income available for distribution to Ameritrans and its
stockholders would result. See "Investment Policies -- Ameritrans Investment
Policies," "Federal Income Tax Considerations," and "Regulation."
The Small Business Investment Act of 1958 (the "1958 Act") and regulations
thereunder (the "SBA Regulations") govern the activities of SBICs and under
certain circumstances may have the effect of restricting distributions by SBICs,
such as Elk. The SBA has made loans to Elk, and Elk has issued debentures in the
amount of those loans to the SBA. Under the SBA Regulations, Elk is required to
pay any interest due to the SBA on a timely basis. Historically, Elk has made
timely payment of interest due to the SBA. However, if Elk were unable to do so
in the future for any reason at a time when it had investment company taxable
income, it could be prohibited by SBA Regulations from making the distributions
necessary to maintain its qualification as an RIC. Under such circumstances, in
order to comply with the SBA Regulations and the RIC distribution requirements,
Elk would have to request and receive a waiver of the SBA's restrictions. In the
absence of a waiver, compliance with the SBA Regulations could result in loss of
RIC status by both Elk and Ameritrans, and the consequent imposition of
corporate tax on both companies.
In addition, Elk must comply with certain covenants contained in its loan
agreements with its banks. If we do not comply with these covenants and do not
obtain waivers from the banks should a default occur and remain continuing, Elk
could be prohibited from paying dividends. If Elk were unable to remedy the
default and distribute its income to its stockholder, both Elk and Ameritrans
would lose their RIC status and be subject to corporate taxes.
RISKS ASSOCIATED WITH DIVERSIFICATION REQUIREMENTS
We intend to continue to pursue an expansion and diversification strategy
in our loan and investment business, and believe that there are growth
opportunities in the areas of small and medium-sized businesses. However, the
asset diversification requirements under the Internal Revenue Code could
restrict such expansion. These requirements provide, in part, that not more than
25% of the value of an RIC's total assets may be invested in the securities
(other than U.S. Government securities or securities of other RICs) of any one
issuer or two or more issuers controlled by such RIC that are engaged in similar
or related trades or businesses. Our investment in Elk will not be subject to
this diversification test so long as Elk is an RIC. However, our investment in
Elk Capital and any other subsidiaries may be subject to this test. The test is
initially calculated at the time the assets are acquired; however, subsequent
growth of a non-RIC subsidiary, if internally generated (as opposed to growth
via acquisitions), will not violate the diversification requirement even if it
represents in excess of 25% of Ameritrans' total assets. If Ameritrans fails the
diversification test at any time in the future, it would lose its RIC status,
with the consequences described above. Accordingly, our maintenance of RIC
status could limit our ability to expand and diversify our business. Our
principal focus will be to expand our business through internally generated
growth and only to consider an acquisition if, giving effect to the acquisition,
the Internal Revenue Code's diversification requirements would be met. See
"Federal Income Tax Considerations."
OUR SUCCESS IS DEPENDENT UPON OUR MANAGEMENT, PARTICULARLY GARY C. GRANOFF.
Our ability to maintain our competitive position depends on retaining the
services of our senior management. The loss of the services of one or more
members of senior management could have a material adverse effect on us. In
particular, we are largely dependent on the continued efforts of Gary C.
Granoff, who is our President and Chairman of our Board of Directors, Ellen M.
Walker, Executive Vice President and a director, Lee A. Forlenza, Senior Vice
President and a director, and Steven Etra, Vice President and a director.
We have in place employment agreements with all of our senior management.
We are also the beneficiary of a "key person" life insurance policy on the life
of Mr. Granoff. The proceeds of this policy have been assigned to our banks as
additional collateral for our loans. See "Management."
We intend to hire, additional staff to assist in our future expansion. If
we are unable to recruit and hire qualified individuals to fill these positions,
our ability to expand our business operations may be restricted. See "Business
- -- Employees."
-12-
WE ARE CONTROLLED BY OUR PRINCIPAL STOCKHOLDERS, INCLUDING MANAGEMENT
STOCKHOLDERS.
As of the date of this Prospectus, our management and principal
stockholders beneficially own a significant portion of our Common Stock
(approximately 48%). If all the Warrants, Underwriters' Units, and Underwriters'
Warrants were exercised, our management and principal stockholders would own
approximately 40% of our Common Stock. Stockholders do not have cumulative
voting rights. As a result, management and our principal stockholders will
continue to be able to exercise substantial influence over any matters requiring
the vote of stockholders, including the election of Directors, which could delay
or prevent a change in control of Ameritrans. See "Security Ownership of
Principal Stockholders" and "Management."
THE MARKET PRICE OF THE COMMON STOCK WILL FLUCTUATE, AND COULD FLUCTUATE
SIGNIFICANTLY.
The Ameritrans Common Stock is listed on the NASDAQ SmallCap Market under
the symbol "AMTC", and prior to our acquisition of Elk, its Common Stock was
listed under the symbol "EKFG." Historically, there has been a low trading
volume in the Ameritrans Common Stock. See "Price Range of Common Stock."
The market price of the Common Stock will fluctuate, and could fluctuate
significantly, in response to various factors and events, including the
following:
o the liquidity of the market for the Common Stock;
o differences between our actual financial or operating results and
those expected by investors and analysts;
o changes in analysts' recommendations or projections;
o new statutes or regulations or changes in interpretations of
existing statutes and regulations affecting our business;
o changes in general economic or market conditions; and
o broad market fluctuations.
REDEMPTION OF REDEEMABLE WARRANTS.
If the Warrants are called for redemption by the Company, Warrantholders
will have thirty days to exercise their rights to purchase shares of Common
Stock. If holders of the Warrants do not exercise them before they are redeemed,
the holders thereof would lose the benefit of the difference between the market
price of the underlying Common Stock and the exercise price of such Warrants, as
well as any possible future price appreciation in the Common Stock. If the
Warrants are exercised, existing stockholders may be diluted and the market
price of the Common Stock may be adversely affected. A Warrantholder who fails
to exercise the Warrants before they are redeemed will receive only $.10 per
Warrant. Redemption of the Warrants could force the holders to exercise the
Warrants when it may be disadvantageous to do so, or sell the Warrants at the
market value of the Warrants at the time of redemption. See "Description of
Securities--Warrants."
RESTRICTIONS ON MARKETMAKING ACTIVITIES DURING WARRANT SOLICITATION.
To the extent that the Underwriter solicits the exercise of Warrants, it
may be prohibited by Regulation M under the Exchange Act from engaging in
marketmaking activities during such solicitation and for up to five days
preceding such solicitation. As a result, the Underwriter will be unable to
continue to provide a market for the Company's securities during certain periods
while the Warrants are exercisable which could reduce liquidity in the Common
Stock. The Underwriter is not obligated to act as a marketmaker. See
"Underwriting."
-13-
NASDAQ LISTING AND CONTINUED LISTING REQUIREMENTS.
The Company's securities are listed on the NASDAQ SmallCap Market, Inc.
("NASDAQ"). For continued listing on NASDAQ, a company, among other things, must
have at least $2,500,000 in stockholders' equity, 500,000 shares in the public
float with a market value of $1,000,000, and a minimum bid price of $1.00 per
share. If the Company cannot satisfy the requirements for continued quotation on
NASDAQ, trading, if any, in the securities offered hereby would be conducted in
the over-the-counter market in what are commonly referred to as the "pink
sheets" or on the NASD OTC Electronic Bulletin Board. As a result, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the price of, the securities, and the liquidity of the Company's securities will
be adversely affected.
THE MARKET PRICE OF OUR SECURITIES MAY DECLINE DUE TO SHARES ELIGIBLE FOR FUTURE
SALE.
Future sales of substantial amounts of Common Stock in the public market,
or the perception that such sales could occur, could adversely affect prevailing
market prices from time to time. In addition, several of our principal
stockholders and entities affiliated with them hold a significant portion of our
outstanding Common Stock, and a decision by one or more of these stockholders to
sell their shares could adversely affect the market price of the Common Stock.
As of the date of this Prospectus, we have outstanding 2,035,600 shares of
Common Stock, 300,000 shares of 9 3/8% cumulative participating redeemable
Preferred Stock, 300,000 publicly issued Warrants, and 30,000 Underwriters'
Units. Except for the shares currently owned or subsequently acquired by our
affiliates, the outstanding shares of Common Stock are freely tradable without
restriction under the Securities Act of 1933 (the "Securities Act").
The shares owned by our affiliates may be sold in accordance with the
conditions of Rule 144 of the Securities Act. In general, under Rule 144, an
affiliate would be entitled to sell in brokers' transactions or to market makers
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock (approximately
20,356 shares based on the number of shares presently outstanding), or the
average weekly trading volume of the Common Stock on the Nasdaq SmallCap Market
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission (the "SEC"). Sales under Rule
144 are also subject to certain manner of sale provisions, notice requirements
and the availability of current public information about the company.
To date, we have granted under our 1999 Employee Plan options to purchase
100,000 shares of Common Stock. In addition, options to purchase a total of
22,224 shares of Common Stock have been granted under the Director Plan. The
Board of Directors and shareholders have approved amendments to both stock
option plans which increase the number of shares authorized under the 1999
Employee Plan to 200,000 and the Director Plan to 125,000. The amendment of the
Director Plan is subject to the approval of the Securities and Exchange
Commission (the "SEC").
We intend to file a registration statement under the Securities Act to
register the shares reserved for issuance under the 1999 Employee Plan and the
Director Plan. Shares issued upon exercise of outstanding stock options after
the effective date of such registration statement generally will be tradable
without restriction under the Securities Act.
-14-
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR FORECAST IN THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS.
This Prospectus contains forward-looking statements that have been made
under the provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are not historical facts, but, rather, are
based on current expectations, estimates, and projections about our industry,
our beliefs, and assumptions. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates," and variations of these words and
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance, and are subject to certain
risks, uncertainties, and other factors, some of which are beyond our control,
are difficult to predict, and could cause actual results to differ materially
from those expressed or forecast in the forward-looking statements. These risks
and uncertainties include those described in "Risk Factors" and elsewhere in
this Prospectus. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect our management's view only as of the
date of this Prospectus. We undertake no obligation to update these statements
or publicly release the result of any revisions to the forward-looking
statements that we may make to reflect events or circumstances after the date of
this Prospectus or to reflect the occurrence of unanticipated events.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of Common Stock by
the securityholders selling the Common Stock underlying the Warrants and
Underwriters' Units, although we shall receive approximately $2,010,000 if all
the Warrants are exercised. We will also receive $643,500 from the exercise of
all the Underwriters' Units and $252,000 from the exercise of all the
Underwriters' Warrants.
We intend to use the aggregate proceeds of $2,905,500 to fund our expanded
and diversified non-SBIC business, which may be conducted directly by Ameritrans
or through other subsidiaries. We anticipate that a portion of this amount will
be used to fund the activities of Elk Capital, which will not be an RIC and
will, therefore, not be required to make distributions to its stockholders. This
will enable us to use any after-tax earnings of Elk Capital to internally
finance growth.
Until we apply the proceeds to the purposes described above, we intend to
temporarily reduce the aggregate amounts outstanding under Elk's revolving
credit facilities by temporarily repaying debt in the aggregate amount of up to
$2,905,500, with various interest rates based on the Company's choice of the
lower of either the reserve adjusted LIBOR rate plus 150 basis points or 1/2%
below the banks' prime rates plus certain fees. To the extent we have paid down
our lines of credit, we will reborrow from time to time amounts available under
Elk's existing revolving credit facilities and any similar facilities we may be
able to arrange for Ameritrans. See "Business -- Source of Funds."
The allocation of net proceeds set forth above represents our best
estimates of their use. Because Ameritrans has not commenced significant
operations other than through Elk, we cannot determine with certainty how much
of our expanded and diversified business we will do directly in Ameritrans and
how much through Elk Capital or other new specialized subsidiaries. We also may
acquire other related businesses. We have entered into discussions from time to
time with potential acquisition candidates; however, any discussions are
preliminary and we have not entered into any definitive agreements with respect
to such acquisitions at this time.
The net proceeds actually allocated to the operations of Elk and our
proposed new operations may vary based on numerous factors, such as the nature
of the investment and lending opportunities that become available to us, changes
in the regulatory environment affecting taxi ownership and operations in various
cities and changes in SBA regulations. We therefore reserve the right to
reallocate net proceeds of this offering among our various investing and lending
operations as our management, in its sole discretion, deems advisable.
Any portion of the proceeds that we do not use to temporarily pay down our
indebtedness will be temporarily invested in time deposits, income-producing
securities with maturities of 15 months or less that are issued or guaranteed by
the federal government or agencies thereof, and high quality debt securities
maturing in one year or less from the time of investment.
-15-
DILUTION
The consolidated net tangible book value of Ameritrans at March 31, 2003,
was $6.25 (unaudited). "Net tangible book value per share" is the tangible net
worth (total tangible assets less total liabilities and Preferred Stock) of
Ameritrans divided by the number of shares of Common Stock outstanding. Based
upon a Warrant price per share of $6.70, an exercise price of $21.45 per unit
for the Underwriters' Units, and an exercise price per share of $8.40 for the
Underwriters' Warrants, and after giving effect to the exercise of all the
Warrants, Underwriters' Units and Underwriters' Warrants, the PRO FORMA net
tangible book value per common share of Ameritrans at March 31, 2003 would have
been $15,275,321 or $6.38 per share, representing an immediate increase in net
tangible book value of $0.13 per share to existing common stockholders and an
immediate dilution of $0.32 per share to the Warrantholders exercising the
Warrants ("New Shareholders").
The following table illustrates this dilution to New Investors:
Warrant price per Common Stock............................................................ $6.70
Net tangible book value per common share before the exercise of all Warrants.............. $6.25
Increase per common share attributable to the exercise of all Warrants.................... $0.13
-----
Net tangible book value per common share after the exercise of all Warrants............... $6.38
-----
Dilution to New Investors................................................................. $0.32
=====
DIVIDENDS
Before Ameritrans acquired Elk, its stockholders were the stockholders of
Elk and received dividends directly from Elk. Elk registered under the 1940 Act
for the fiscal year ended June 30, 1984, and declared and paid dividends to
holders of Common Stock for the fiscal years ended June 30, 1984, through June
30, 1992. Thereafter, the Company paid dividends per share on its Common Stock
for the fiscal years ended June 30, 1997, 1998, 1999, 2000, 2001, 2002, and for
fiscal 2003 through the date of this Prospectus as follows: 1997 -- $.74, 1998
- -- $.65, 1999 -- $.72, 2000 -- $.72, 2001 -- $.39, 2002 -- $.54, and 2003 to
date -- $.21. Ameritrans intends to distribute at least 90% of its investment
company taxable income on a quarterly basis to its stockholders.
Ameritrans has paid a dividend on the Participating Preferred Stock of
$0.228125 per share for the period April 18 through June 30, 2002, a dividend of
$0.28125 per share for the period July 1 through September 30, 2002,
$0.28125 per share for the period October 1 through December 31, 2002, a
dividend of $0.28125 per share for the period January 1, 2003 through March 31,
2003, and has declared a dividend of $0.28125 per share for the period April 1,
2003 through June 30, 2003.
Elk and Ameritrans have elected to be treated for tax purposes as RICs
under the Internal Revenue Code. As RICs, neither Ameritrans nor Elk is subject
to federal income tax on any investment company taxable income that it
distributes to its stockholders, if at least 90% of its investment company
taxable income is distributed to its stockholders. Investment company taxable
income includes, among other things, dividends and interest reduced by interest
and operating expenses. For the near term, substantially all of Ameritrans'
investment company taxable income is expected to be comprised of cash dividends
paid to it by Elk. Substantially all of Elk's net income is investment company
taxable income and is derived from interest received on outstanding loans. See
"Federal Income Tax Considerations."
We do not currently expect Ameritrans to have any material capital gains;
however, to the extent that it does, it may either distribute them annually or
retain them, pay the capital gains tax and apply any after-tax amounts to
retained earnings for corporate use. Our ability to make dividend payments is
restricted by certain asset coverage requirements under the 1940 Act and is
dependent upon maintenance of our status as an RIC under the Internal Revenue
Code. The ability of Elk and, therefore, of Ameritrans, to make dividend
payments is further restricted by certain financial covenants contained in the
credit agreements with Elk's banks, by SBA rules and under the terms of the SBA
subordinated debentures. See "Regulation" and "Federal Income Tax
Considerations."
Elk Capital is not an RIC, and Ameritrans may establish other subsidiaries
that are not RICs. Non-RIC subsidiaries would not be required to make
distributions to Ameritrans. In such cases, unless Ameritrans required
-16-
distributions from such non-RIC subsidiaries to fund the distributions it is
required to make as an RIC, these subsidiaries would use income, if any, to fund
their operations.
PRICE RANGE OF COMMON STOCK
The Elk Common Stock was listed on the Nasdaq SmallCap Market on June 22,
1998, under the symbol EKFG, prior to which it had been quoted by the National
Daily Quotation Bureau in the "pink sheets." Since December 16, 1999, when
Ameritrans acquired Elk, its Common Stock has been listed on the Nasdaq SmallCap
Market under the symbol "AMTC."
The following tables show the high and low sale prices per share of Common
Stock as reported by Nasdaq for the fiscal years ended June 30, 2000, 2001,
2002, and the current fiscal year to June 23, 2003.
The tables also show, for the same periods, the net asset value per share,
the premium of high sale price to net asset value, and the premium of low sale
price to net asset value. Net asset value per share is determined as of the last
day in the relevant quarter and therefore may not reflect the net asset value
per share on the date of the high and low sale price. The net asset values are
based on outstanding shares at the end of each period. Due to the limited number
of transactions involving the Common Stock during the periods presented below,
the public trading market with respect to our securities has been limited.
PREMIUM PREMIUM
NET ASSET OF HIGH SALES OF LOW SALES
VALUE PER PRICE TO PRICE TO NET
ELK SALE SHARE NET ASSET VALUE % ASSET VALUE %
- --- ---- ----- ----------------- -------------
HIGH LOW
---- ---
FISCAL 2000
1st Quarter................................. 14.125 7.00 7.88 79% -11%
2nd Quarter (through December 16, 1999)(1).. 11.50 7.50
AMERITRANS
2nd Quarter (from December 16, 1999)(1)..... 11.50 7.50 7.68 50% -2%
3rd Quarter................................. 10.00 6.00 7.57 28% -22%
4th Quarter................................. 9.25 6.00 7.38 25% -19%
FISCAL 2001
1st Quarter................................. 10.00 7.125 7.43 35% -4%
2nd Quarter................................. 9.25 4.125 7.42 25% -44%
3rd Quarter................................. 7.375 4.625 7.25 2% -36%
4th Quarter................................. 5.25 4.00 7.34 -28% -46%
FISCAL 2002
1st Quarter................................. 5.75 4.00 7.52 -24% -47%
2nd Quarter................................. 9.00 4.33 7.44 21% -42%
3rd Quarter................................. 7.15 6.24 7.30 -2% -15%
4th Quarter................................. 7.00 5.10 8.42 -17% -40%
FISCAL 2003
1st Quarter................................. 6.25 5.00 8.13 -23% -38%
2nd Quarter................................. 5.78 4.63 8.11 -29% -43%
3rd Quarter................................. 5.49 2.95 8.02 -32% -63%
4th Quarter (April 1 to June 23)............ 5.11 3.45
On June 23, 2003, the closing sale price for a share of our Common Stock
was $4.92, as reported by Nasdaq.
- ---------
(1) Stock prices shown are the high and the low for the quarter.
-17-
CAPITALIZATION
The following table sets forth (i) consolidated capitalization of
Ameritrans at March 31, 2003 and (ii) the PRO FORMA capitalization of Ameritrans
at March 31, 2003, as adjusted to reflect the effect of the exercise of 300,000
Warrants, at an assumed public offering a price of $6.70 per share, 30,000
Underwriters' Units at $21.45 per unit, and 30,000 Underwriters' Warrants at
$8.40 per Underwriters' Warrant, and the application of the estimated proceeds
of $2,905,500 if all the Warrants, Underwriters' Units, and Underwriters'
Warrants are exercised as described in this Prospectus. See "Use of Proceeds"
and "Business." This table should be read together with the Selected Financial
Information included in this Prospectus.
MARCH 31, 2003
--------------
(UNAUDITED)
-----------
ACTUAL AS ADJUSTED
------------ ------------
Debt:
Subordinated SBA debentures of subsidiary (Elk) ............................ $ 9,200,000 $ 9,200,000
Notes payable to bank(1) ................................................... 35,780,000 32,874,500
------------ ------------
Total long-term debt and bank debt .................................... 44,980,000 42,074,500
Stockholders' equity:
Preferred Stock 500,000 authorized, none issued or outstanding ........ -- --
9 3/8% Cumulative participating preferred Stock, $.01 par value,
$12.00 face value, 5,000,000 shares authorized; 300,000 shares issued
and outstanding (330,000 shares issued and outstanding as adjusted) . 3,600,000 3,960,000
Common Stock, $.0001 par value; 5,000,000 shares authorized:
2,045,600 shares issued and 2,035,600 shares outstanding, (2,405,600
shares issued and 2,395,600 shares outstanding as adjusted)(2) ...... 205 241
Additional paid-in capital ............................................ 13,869,545 16,415,009
Accumulated deficit ................................................... (1,040,387) (1,040,387)
Cumulative other comprehensive loss ................................... (29,542) (29,542)
Treasury stock, at cost, 10,000 shares of common stock ................ (70,000) (70,000)
------------ ------------
Total stockholders' equity ............................................ 16,329,821 19,235,321
------------ ------------
Total capitalization ....................................................... $ 61,309,821 $ 61,309,821
============ ============
- ---------
(1) We intend to temporarily repay up to $2,905,500 of indebtedness with the
proceeds of this exercise of the Warrants, Underwriters' Units, and
Underwriters' Warrants. See "Use of Proceeds."
(2) Excludes an aggregate of (i) 100,000 shares issuable pursuant to
immediately exercisable options outstanding at December 31, 1999, (ii)
100,000 shares reserved for issuance upon the exercise of additional
options that may be granted under our Employee Stock Option Plan, and
(iii) 75,000 shares authorized under our Non-Employee Director Stock
Option Plan, pursuant to which, options to purchase 22,224 shares have
been granted. See "Management -- Stock Option Plans" and "Shares Eligible
for Future Sale."
SELECTED FINANCIAL INFORMATION
On December 16, 1999, Ameritrans acquired Elk in a share-for-share
exchange. Prior to the acquisition, Elk had been operating independently and
Ameritrans had no operations.
-18-
The tables below contain certain summary historical financial information
of Ameritrans and Elk. The results for the nine months ended March 31, 2003, do
not necessarily indicate the results to be expected for the full year ending
June 30, 2003. You should read these tables in conjunction with the consolidated
financial statements of Ameritrans, and the Notes thereto, (the "Financial
Statements") included elsewhere in this Prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA
Investment Income .............................. $ 6,269,719 $ 6,439,792 $ 6,602,397 $ 5,583,894 $ 4,606,456
----------- ----------- ----------- ----------- -----------
Interest Expense ............................... 2,632,918 3,392,202 3,345,526 2,498,284 1,840,731
Other Expenses ................................. 2,512,844 2,065,724 2,528,806 1,844,949 1,852,262
----------- ----------- ----------- ----------- -----------
Total Expenses ................................. 5,145,762 5,457,926 5,874,332 4,343,233 3,692,993
----------- ----------- ----------- ----------- -----------
Operating Income Before Loss on Assets
Acquired in Satisfaction of Loans ............. 1,123,957 981,866 728,065 1,240,661 913,463
----------- ----------- ----------- ----------- -----------
Loss on Assets Acquired in Satisfaction of Loans (78,907) (122,912) (61,546) (11,272) (14,649)
Other Income (Expense) ......................... 2,700 (276,549) (440,196) 7,200 38,798
Benefit of (Provision for) Income Taxes(1) ..... (8,854) (7,896) (13,571) 769 (3,271)
----------- ----------- ----------- ----------- -----------
Net Income ..................................... $ 1,038,896 $ 574,509 $ 12,752 $ 1,237,358 $ 934,341
----------- ----------- ----------- ----------- -----------
Dividends on Preferred Stock ................... 68,438 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net Income Available To Common Stockholders .... $ 970,458 $ 574,509 $ 212,752 $ 1,237,358 $ 934,341
----------- ----------- ----------- ----------- -----------
-19-
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Net Income Per Common Share (basic and diluted) $ .54 $ .33 $ .12 $ .71 $ .62
----------- ----------- ----------- ---------- ----------
Common Stock Dividends Paid ................... $ 969,352 $ 676,421(2) $ 1,256,832 $1,256,832 $ 986,724
----------- ----------- ----------- ---------- ----------
Common Stock Dividends Paid Per Common Share .. $ .54(3) $ .39(2) $ .72 $ .72 $ .65
----------- ----------- ----------- ---------- ----------
Weighted Average Shares of Common Stock
Outstanding .................................. 1,800,614 1,745,600 1,745,600 1,745,600 1,518,969
----------- ----------- ----------- ---------- ----------
Net change to accumulated other
comprehensive income ......................... $ (43,612) $ (123,364) $ (124,319) $ 62,964 $ 140,548
=========== =========== =========== ========== ==========
NINE MONTHS ENDED MARCH 31,
---------------------------
2003 2002
---- ----
(UNAUDITED)
STATEMENT OF OPERATIONS DATA
Investment Income .............................. $ 4,744,787 $ 4,637,439
----------- -----------
Interest Expense ............................... 1,622,264 2,025,435
Other Expenses ................................. 2,565,962 1,679,450
----------- -----------
Total Expenses ................................. 4,188,226 3,704,885
----------- -----------
Operating Income Before Loss on Assets
Acquired in Satisfaction of Loans ............. 556,561 932,554
----------- -----------
Loss on Assets Acquired in Satisfaction of Loans (72,464) (64,660)
Other Income (Expense) ......................... -- --
Benefit of (Provision for) Income Taxes(1) ..... (15,926) (7,596)
----------- -----------
Net Income ..................................... $ 468,171 $ 860,298
----------- -----------
Dividends on Preferred Stock ................... (253,125) --
----------- -----------
Net Income Available To Common Stockholders .... $ 215,046 $ 860,298
----------- -----------
Net Income Per Common Share (basic and diluted) $ .11 $ .49
----------- -----------
Common Stock Dividends Paid .................... $ 429,576 $ 846,616
----------- -----------
Common Stock Dividends Paid Per Common Share ... $ .21 $ .49
----------- -----------
Weighted Average Shares of Common Stock
Outstanding ................................... 2,035,600 1,745,600
----------- -----------
Net change to accumulated other
comprehensive income .......................... $ -- $ --
=========== ===========
JUNE 30,
------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
BALANCE SHEET DATA
Loans Receivable ............................ $ 55,029,831 $ 54,559,970 $ 56,806,579 $ 51,103,932 $ 41,590,000
Unrealized depreciation of investments ...... (238,500) (318,500) (380,000) (380,000) (295,000)
------------ ------------ ------------ ------------ ------------
Net of unrealized depreciation of investments 54,791,331 54,241,470 56,426,579 50,723,932 41,295,000
Total assets ................................ $ 59,008,216 $ 57,984,869 $ 60,294,624 $ 54,510,801 $ 45,399,738
------------ ------------ ------------ ------------ ------------
Notes payable and demand notes .............. $ 33,720,000 $ 35,550,000 $ 37,800,000 $ 31,000,000 $ 22,085,000
Subordinated SBA debentures ................. 7,860,000 8,880,000 8,880,000 8,880,000 8,880,000
Total liabilities ........................... 42,341,135 45,177,743 47,410,598 40,772,584 31,705,011
------------ ------------ ------------ ------------ ------------
Total stockholders' equity .................. $ 16,667,081 $ 12,807,126 $ 12,884,026 $ 13,738,217 $ 13,694,727
============ ============ ============ ============ ============
MARCH 31,
-------------
2003 2002
---- ----
(UNAUDITED)
BALANCE SHEET DATA
Loans Receivable ............................... $56,973,994 $53,775,908
Unrealized depreciation of investments ......... (238,500) (318,500)
----------- -----------
Net of unrealized depreciation of investments .. 56,735,494 53,457,408
Total assets ................................... $61,958,186 $58,630,663
----------- -----------
Notes payable and demand notes ................. $35,780,000 $36,300,000
Subordinated SBA debentures .................... 9,200,000 8,880,000
Total liabilities .............................. 45,628,365 45,958,228
----------- -----------
Total stockholders' equity ..................... $16,329,821 $12,672,435
=========== ===========
- ---------
(1) Elk, since the fiscal year ended June 30, 1984, and Ameritrans have
elected and qualified to be taxed as a regulated investment company and
substantially all taxable income was required to be distributed to
stockholders. Therefore, only minimal taxes were required to be paid.
-20-
(2) Includes a dividend of $.085 per share for the quarter ended June 30,
2001, which was declared October 11, 2001 and was paid to stockholders on
October 31, 2001.
(3) Includes dividend of $.06 per share for the quarter ended June 30, 2002,
which was declared on September 26, 2002 and was paid to stockholders on
October 16, 2002.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion in conjunction with the financial
statements and notes to financial statements. The results described below are
not necessarily indicative of the results to be expected in any future period.
Certain statements in this discussion and analysis, including statements
regarding our strategy, financial performance, and revenue sources, are
forward-looking statements based on current expectations and entail various
risks and uncertainties that could cause actual results to differ materially
from those expressed in the forward-looking statements, including those
described in "risk factors" and elsewhere in this Prospectus.
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. Both Ameritrans and Elk are registered as an
investment company under the Investment Company Act of 1940.
Elk 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. Elk also makes loans
and investments to persons who qualify under SBA regulation as
"non-disadvantaged." Elk's primary lending activity is to originate and service
loans collateralized by New York City, Boston, Chicago and Miami taxicab
medallions. Elk also makes loans and investments in other diversified
businesses. At March 31, 2003, 75.75% of Elk's portfolio was invested in loans
secured by taxi medallions and 24.25% of Elk's loans were to other diversified
businesses.
From inception through April 2002, Ameritrans' only activities have been
the operations of Elk. In May 2002, Ameritrans made its first loans to
businesses using the proceeds raised from the public offering which was
completed in April 2002.
The information contained in this section should be used in conjunction
with the Consolidated Financial Statements and Notes therewith appearing on Form
10-Q for the period ended March 31, 2003, and the Company's Annual Report on
Form 10-K for the year ended June 30, 2002.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2003 AND 2002.
TOTAL INVESTMENT INCOME
The Company's investment income for the nine months ended March 31, 2003
increased $107,348 or 2.3% as compared with the nine months ended March 31,
2002. This increase was mainly due to the Backup Services Fee the Company
received ($22,500) as a result of executing an agreement with Medallion
Financial Corp and Merrill Lynch to be a standby backup loan servicing agent,
combined with income earned by Ameritrans ($99,772) on investments made from the
proceeds of the Company's public offering. As a back-up servicer, the Company
will earn an annual standby fee. If the agreement is activated by Merrill Lynch,
the Company will become the primary servicer which will create an additional
revenue source. There can be no assurances however that this agreement will be
activated by Merrill Lynch.
OPERATING EXPENSES
-21-
Operating expenses increased $286,388 for the nine month period ended
March 31, 2003 when compared with the similar period ended March 31, 2002. This
increase was due to an increase in payroll costs of $99,362, legal fees of
$52,152, foreclosure expenses of $281,838 and other administrative expenses of
$248,032, offset by a decrease in interest costs of $403,171, which reflects
lower interest charged on the Company's bank debt combined with the refinancing
of its SBA debentures. The foreclosure expenses are incurred by the Company as
it satisfies outstanding balances incurred by the default borrowers on the
medallions with the City of Chicago so that the Company can repossess and resell
the medallions. Write off and depreciation of interest and loans receivable and
losses on assets acquired for the nine month period ended March 31, 2003
increased $204,757 when compared with the nine months ended March 31, 2002.
As a result of the losses sustained by the Company on foreclosure sales of
Chicago taxi medallions, the Company at June 30, 2002 instituted an accounting
policy that charged off all losses on the resale of each individual medallion
sold, as sales were completed, but maintained the Company's legal claims against
the borrowers and guarantors of the loans for the remaining amounts they owed to
the Company. The Company estimated it would recover ten percent (10%) of the
value of these legal claims through collection proceedings. The Company
engaged counsel in Chicago to actively pursue these claims. The carrying value
of these amounts were $ 93,728 and $ 131,773 at June 30, 2002 and March 31,
2003, respectively, and are recorded as a miscellaneous receivable. The final
amount recorded at March 31, 2003 reflects a change in management's estimate of
the amount collectable to be eight percent (8%) of the value of the legal
claims, and further reflects a discount of the eight percent (8%) estimated to
be collectible by a present value factor of 5.25% (the Company's cost of funds)
over the estimated time period of collection which management expects to be
three (3) years. The Company intends to review these estimates from time to time
and to make appropriate adjustments based upon actual collection experience.
The increase in write off and depreciation of interest and loans
receivable is primarily due to the increase in Chicago loan portfolio
delinquencies and defaults, which is attributed to the economic slowdown and the
effects of September 11, 2001 on the Chicago taxi industry. Activities in
connection with the Chicago operations are as follows: a) $50,018 of charge off
of principal due to losses on 14 of the 28 completed Chicago medallion
foreclosures that occurred in the nine months ended March 31, 2003, b) $189,362
of accrued interest on the completed Chicago medallion foreclosures was written
off and, c) the Company did not accrue an additional $40,817 of interest on
certain foreclosed Chicago medallion loans. In addition, the Company increased
its unrealized depreciation on interest receivable for potential losses on the
remaining Chicago taxi medallion loans that were in default by an additional net
amount of $192,728 for the nine months ended March 31, 2003. As mentioned above,
the foreclosure expenses incurred by the Company as it satisfies outstanding
balances incurred by the default borrowers on the medallions with the City of
Chicago were $281,838 for the nine months ended March 31, 2003. This expense
primarily consisted of back taxes, interest and penalties owed to the City of
Chicago Department of Revenue by defaulted medallion owners which was required
to be paid as a condition of completing the medallion foreclosures sales and
transfer to new purchasers.
-22-
RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2002 AND 2001
TOTAL INVESTMENT INCOME
The Company's investment income decreased $170,073 to $6,269,719 as
compared with the prior year ended June 30, 2001. This decrease was mainly due
to the decrease in interest earned on loans receivable, ($181,232), offset by an
increase in other fees ($11,159). This decrease reflects a lower average
interest rate earned on the Company's outstanding loan portfolio.
OPERATING EXPENSES
Interest expense for the years ended June 30, 2002 decreased $759,284 to
$2,632,918 when compared to the year ended June 30, 2001. This reflects the
lower interest charged on outstanding bank borrowing combined with a paydown of
the notes payable, bank and an SBA debenture in the amount of $1,020,000 as a
result of the Company's successful public offering of 300,000 units in April
2002. Salaries and employee benefits increased $142,620 when compared with the
prior year. This increase reflects the increases that were put in effect when
the officers signed employment agreements combined with a temporary increase in
staff due to the implementation of the Company's new computer system. Other
administrative costs decreased $33,980 when compared with the prior year. This
decrease was mainly due to decreased miscellaneous administrative expenses and
loss on assets acquired in satisfaction of loans, net. The Company also charged
off $126,565 in foreclosure expenses for the year ended June 30, 2002.
Depreciation in value of loans and accrued interest increased $167,910 to
$393,145 due mainly to the write down of the Company's Chicago loan portfolio
and accrued interest.
NET INCOME
Net income increased to $1,038,896 from $574,509 in the year ended June
30, 2002. The change in the net income for the year ended June 30, 2002 that was
attributable to other income (expense) amounted to $279,249. This change was
primarily due to a one time charge of $413,186 due to the termination of the
Company's merger talks with Medallion, net of $121,637 gain on the sale of
equity securities for the year ended June 30, 2001.
RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2001 AND 2000
TOTAL INVESTMENT INCOME
The Company's investment income decreased by $162,605 to $6,439,792 for
the year ended June 30, 2001, when compared with the year ended June 30, 2000.
The decrease was due to a decrease in interest earned on the loan portfolio of
$11,308 combined with a decrease in fees and other income of $151,297. This
decrease reflects the leveling of the company's portfolio which occurred during
its merger discussions with Medallion.
OPERATING EXPENSES
Interest expense increased by $46,676 to $3,392,202 when compared with the
prior year due to increased interest rates during the beginning of the fiscal
year combined with increased average outstanding loan balance during the year.
Other operating expenses decreased to $1,963,401 for the year ended June 30,
2001, as compared with $1,972,506 in the prior year due to a slowdown of Chicago
Medallion loan deals. Depreciation in value of loans decreased $392,611 to
$225,235 during the year ended June 30, 2001, as compared with the year ended
June 30, 2000. During the year ended June 30, 2001 the Company expensed costs
incurred in connection with the proposed merger with Medallion in the amount of
$413,186. These costs were non operational and a one time charge.
NET INCOME
Net income ended June 30, 2001, increased $361,757 to $574,509. This
increase was mainly due to a decrease in depreciation in value of loans of
$392,611 and a one time write off of merger costs of $413,186. As compared with
prior year recapitalization costs and terminated offering cost of $679,132.
-23-
BALANCE SHEET AND RESERVES
Total assets increased $2,949,970 as of March 31, 2003 when compared with
total assets as of June 30, 2002. This increase was partly due to cash generated
by Elk's successful sales to the SBA of debentures in the amount of $2,050,000
and $3,000,000. Elk and the SBA entered into an agreement in January 2002 where
the SBA committed to reserve debentures in the amount of $12,000,000 to be
issued by Elk prior to September 30, 2006. In July 2002 a new debenture payable
to the SBA for $2,050,000 was drawn from the reserved pool of $12,000,000. In
September 2002, Elk paid off a SBA debenture in the amount of $2,690,000 in
order to reduce costs. In December 2002, Elk paid off an additional SBA
debenture in the amount of $1,020,000 and also drew a new debenture in the
amount of $3,000,000. In addition, Elk drew down an additional $2,060,000 on its
bank borrowings in order to finance expansion. On a consolidated basis, the
Company increased its loans receivable by a net of $1,944,163 between June 30,
2002 and March 31, 2003. During this nine month period, the Company also
increased its receivable from debtors in satisfaction of loans by $63,987 and
its equity investments by $521,236.
LIQUIDITY
At March 31, 2003, 80% of Elk's indebtedness was represented by
indebtedness to its banks and 20% by the debentures issued to the SBA with fixed
interest rates ranging from 4.63% to 7.38% before annual user fees which range
from 0.87% to 1% and before amortization of points and fees. Elk currently may
borrow up to $40,000,000 under its existing lines of credit, subject to the
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.
Our sources of liquidity are credit lines with banks, long-term SBA
debentures that are issued to or guaranteed by the SBA, loans receivable
amortization and prepayments. Prepayments on loans receivable are influenced
significantly by general interest rates, economic conditions and competition. As
an RIC, both Elk and Ameritrans distribute at least 90% of their investment
company taxable income. Consequently, we primarily rely upon external sources of
funds to finance growth. In order to provide the funds necessary for our
expansion strategy, we expect to raise additional capital and to incur, from
time to time, additional bank indebtedness and (if deemed necessary by
management) to obtain SBA loans. There can be no assurances that such additional
financing will be available on acceptable terms.
ASSET / LIABILITY MANAGEMENT
INTEREST RATE SENSITIVITY
Ameritrans, like other financial institutions, is subject to interest rate
risk to the extent its interest- earning assets (consisting of medallion loans
and commercial loans) rise or fall at a different rate over time in comparison
to its interest-bearing liabilities (consisting primarily of its credit
facilities with banks and subordinated SBA debentures).
A relative measure of interest rate risk can be derived from Ameritrans'
interest rate sensitivity gap i.e., the difference between interest-earning
assets and interest-bearing liabilities, which mature and/or reprice within
specified intervals of time. The gap is considered to be positive when
repriceable assets exceed repriceable liabilities and negative when repriceable
liabilities exceed repriceable assets. A relative measure of interest rate
sensitivity is provided by the cumulative difference between interest sensitive
assets and interest sensitive liabilities for a given time interval expressed as
a percentage of total assets.
Ameritrans' interest rate sensitive assets were approximately $57.0
million and interest rate sensitive liabilities were approximately $45.0 million
at March 31, 2003. Having interest-bearing liabilities that mature or reprice
more frequently on average than assets may be beneficial in times of declining
interest rates, although such an asset/liability structure may result in
declining net earnings during periods of rising interest rates. Abrupt increases
in market rates of interest may have an adverse impact on our earnings until we
are able to originate new loans at the higher prevailing interest rates.
Conversely, having interest-earning assets that mature or reprice more
frequently on average than liabilities may be beneficial in times of rising
interest rates, although this asset/liability structure may result in declining
net earnings during periods of falling interest rates. This mismatch between
maturities and interest rate sensitivities of our interest-earning assets and
interest-bearing liabilities results in interest rate risk.
-24-
The effect of changes in interest rates is mitigated by regular turnover
of the portfolio. Based on past experience, Ameritrans anticipates that
approximately 20% of the portfolio will mature or be prepaid each year.
Ameritrans believes that the average life of its loan portfolio varies to some
extent as a function of changes in interest rates. Borrowers are more likely to
exercise prepayment rights in a decreasing interest rate environment because the
interest rate payable on the borrower's loan is high relative to prevailing
interest rates. Conversely, borrowers are less likely to prepay in a rising
interest rate environment.
INTEREST RATE SWAP AGREEMENTS
Ameritrans manages the exposure of the portfolio to increases in market
interest rates by entering into interest rate cap agreements and interest rate
Swap agreements to hedge a portion of its variable-rate debt against increases
in interest rates and by incurring fixed-rate debt consisting primarily of
subordinated SBA debentures.
On January 10, 2000, Elk entered into a $5,000,000 interest rate Swap
transaction with a bank that expired on October 8, 2001. On June 11, 2001, Elk
entered into an additional interest rate swap transaction with the same bank for
$10,000,000 which expired on June 11, 2002. On June 11, 2001, Elk entered into
another interest rate swap transaction for $15,000,000 with this bank which
expired June 11, 2003. On February 11, 2003, Elk purchased another interest rate
Swap contract for $5,000,000 with the same bank expiring February 11, 2005.
These Swap transactions were entered into to protect the Company from an upward
movement in interest rates relating to outstanding bank debt (see Note 6 for
terms and effective interest rates). These Swap transactions call for a fixed
rate of 4.95%, 4.35%, 4.95%and 2.06%, respectively (plus 150 basis points) for
the Company and if the floating one- month LIBOR rate is below the fixed rate
then the Company is obligated to pay the bank for the difference in rates. When
the one-month LIBOR rate is above the fixed rate then the bank is obligated to
pay the Company for the differences in rates. The effective fixed costs on the
debt that was swapped, including the 150 basis points, is 6.45%, 5.85%, 6.45%and
3.56% respectively.
Ameritrans believes that its bank credit facilities and cash flow from
operations (after distributions to stockholders) will be adequate to fund the
continuing operations of the Company's loan portfolio. Nevertheless, the Company
continues to explore additional options, which may increase available funds for
its growth and expansion strategy. In addition to the application for SBA
funding described above, these financing options would provide additional
sources of funds for both external expansion and continuation of internal
growth. We are working with investment banking firms to investigate the
viability of a number of other financing options which include an equity
offering of securities.
INVESTMENT CONSIDERATIONS
Interest rate fluctuations may adversely affect the interest rate spread
we receive on our taxicab medallion and commercial loans.
Because we borrow money to finance the origination of loans, our income is
dependent upon the differences between the rate at which we borrow funds and the
rate at which we loan funds. While the loans in our portfolio in most cases bear
interest at fixed-rates or adjustable-rates, we finance a substantial portion of
such loans by incurring indebtedness with floating interest rates. As short-term
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 caps, general rises in
interest rates will tend to reduce our interest rate spread in the short term.
In addition, we rely on our counterparties to perform their obligations under
such interest rate caps.
A decrease in prevailing interest rates may lead to more loan prepayments,
which could adversely affect our business.
A borrower is likely to exercise prepayment rights at a time when the
interest rate payable on the borrower's loan is high relative to prevailing
interest rates. In a lower interest rate environment, we will have difficulty
re-lending prepaid funds at comparable rates, which may reduce the net interest
spread we receive.
-25-
Lending to small businesses involves a high degree of risk and is highly
speculative.
Our commercial loan activity has increased in recent years. Lending to
small businesses involves a high degree of business and financial risk, which
can result in substantial losses and should be considered speculative. Our
borrower base consists primarily of small business owners that have limited
resources and that are generally unable to achieve financing from traditional
sources. There is generally no publicly available information about these small
business owners, and we must rely on the diligence of our employees and agents
to obtain information in connection with our credit decisions. In addition,
these small businesses often do not have audited financial statements. Some
smaller businesses have narrower product lines and market shares than their
competition. Therefore, they may be more vulnerable to customer preferences,
market conditions, or economic downturns, which may adversely affect the return
on, or the recovery of, our investment in these businesses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations through private and public
placements of its securities, bank financing, and the issuance to the SBA of its
subordinated debentures.
During January 1998, Elk completed a private placement of 462,000 shares
of Common Stock at $6.50 per share for aggregate gross proceeds of $3,003,000,
less offering expenses of $115,000. The net proceeds were utilized to repay bank
indebtedness and for working capital. A portion of the proceeds, temporarily
used to reduce bank indebtedness up to a maximum of $963,000, was allocated by
Elk toward the organization and capitalization of its then new parent company,
Ameritrans.
On April 24, 2002, Ameritrans completed a public offering of 300,000
units, consisting of one share of Common Stock, one share of 9 3/8% cumulative
participating redeemable Preferred Stock, face value $12.00, and one redeemable
Warrant exercisable into one share of Common Stock at $6.70 per share. The gross
proceeds from the sale were $5,700,000 less offering expenses of $1,704,399. A
portion of the proceeds was used temporarily to reduce bank and SBA
indebtedness. Ameritrans also used part of the proceeds to start its own loan
portfolio.
At March 31, 2003, 80% of Elk's indebtedness was represented by
indebtedness to its banks and 20% by the debentures issued to the SBA with fixed
rates of interest, including user fees, ranging from 5.50% to 8.38%. Elk
currently may borrow up to $40,000,000 under its existing lines of credit,
subject to the 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. In addition, during 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 2002, a new debenture payable to the SBA was
drawn from the reserved pool of $12,000,000 in the amount of $2,050,000 with an
interim interest rate of 2.351%. The fixed rate of 4.67% was determined on the
pooling date of September 25, 2002. In addition to the fixed rate, there is an
additional annual SBA user fee of 0.87% per annum that will also be charged
making the rate 5.54% before applicable amortization of points and fees. In
December 2002, another new debenture payable to the SBA was drawn in the amount
of $3,000,000 with an interim interest rate of 1.927%. The fixed rate of 4.63%
was determined on March 26, 2003. In addition to the fixed rate, there is an
additional annual SBA user fee of 0.87% per annum that will also be charged.
Our sources of liquidity are credit lines with banks, long-term SBA
debentures that are issued to or guaranteed by the SBA, loan amortization and
prepayment. As an RIC, we distribute at least 90% of our investment company
taxable income. Consequently, we primarily rely upon external sources of funds
to finance growth.
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, we will continue to rely upon external
sources of funds to finance growth. In order to provide the funds necessary for
our expansion strategy, we expect to raise additional capital and to incur, from
time to time, additional bank
-26-
indebtedness and (if deemed necessary by management) to obtain SBA loans. There
can be no assurances that such additional financing will be available on
acceptable terms.
SENIOR SECURITIES
The following information is being presented with respect to the
Participating Preferred Stock. The first column presents the number of shares of
Participating Preferred Stock outstanding as of March 31, 2003. Asset Coverage
represents the total amount of net assets of Ameritrans in relation to each
share of Participating Preferred Stock outstanding as of March 31, 2003. The
involuntary liquidation preference is the amount each share of Participating
Preferred Stock would be entitled to upon involuntary liquidation of these
shares. The average daily market value per share is calculated on the basis of
the past 200 business days.
CLASS AND YEAR TOTAL ASSET INVOLUNTARY AVERAGE
- -------------- AMOUNT COVERAGE LIQUIDATING DAILY
OUTSTANDING PER SHARE PREFERENCE MARKET
----------- --------- PER SHARE VALUE
--------- PER SHARE
---------
9 3/8% Participating Preferred Stock 300,000 $207 $12.00* 9.54
- --------------
* Upon an involuntary liquidation of the Company, holders of the
Participating Preferred Stock then outstanding will be entitled to receive
out of the assets of Ameritrans available for distribution to
stockholders, after satisfying claims of creditors but before any
distribution or payment of assets is made to holders of the Common Stock
or any other class of stock of Ameritrans ranking junior to the
Participating Preferred Stock as to liquidation payments, a liquidation
distribution in the amount of $12.00 per share.
-27-
BUSINESS
GENERAL
Ameritrans Capital Corporation was formed in 1998 to engage in lending and
investment activities, primarily with small and medium-sized businesses,
directly and through subsidiaries. On December 16, 1999, Ameritrans acquired Elk
Associates Funding Corporation ("Elk") in a one-for-one share exchange in which
Elk stockholders received shares of common stock of Ameritrans, and Elk became a
wholly-owned subsidiary. Elk is a "small business investment company," or
"SBIC," formed in 1979 and licensed by the U.S. Small Business Administration
("SBA") in 1980.
Elk makes loans to the owners of taxi medallion businesses in the Chicago,
New York City, Miami and Boston markets and to other small businesses. Elk has
never experienced any material losses of principal in connection with taxi
financings but from time to time has experienced some small losses of principal
on its taxi medallion lending operations. Loans made to finance the purchase or
continued ownership of taxi medallions, taxis and related assets represented
approximately 76% of Elk's loan portfolio as of March 31, 2003. Loans made to
finance the acquisition and/or operation of other small businesses constitute
the balance of Elk's loan portfolio.
From inception through April 2002, our only activities have been the
operation of Elk. In May 2002, Ameritrans made its first loans to businesses
using the proceeds raised from the public offering of 300,000 units, each unit
of which was comprised of one share of Common Stock, one share of 9 3/8%
cumulative participating preferred stock (face value $12.00) (the "Participating
Preferred Stock") and one Warrant exercisable into one share of Common Stock for
five (5) years at an exercise price of $6.70. Both Ameritrans and Elk are
registered as business development companies, or "BDCs," under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, Ameritrans and Elk are
subject to the provisions of the 1940 Act governing the operations of BDCs. Both
companies are managed by their executive officers under the supervision of their
Boards of Directors, and the same individuals are the executive officers and
directors of both companies.
In addition, both Ameritrans and Elk have elected to be treated as
"regulated investment companies," or "RICs," for tax purposes. Under the
Internal Revenue Code, as a RIC, we will generally not be subject to U.S.
federal corporate income tax on our investment income if we make qualifying
distributions of our income to stockholders. As a RIC we qualify for this
treatment as long as we distribute at least 90% of our investment company
taxable income to our stockholders as dividends. Elk paid qualifying dividends
from July 1983 through June 1992 and continuously since June 1996. Since
December 16, 1999, when we acquired Elk, these dividends have been payable to
Ameritrans as Elk's sole stockholder. Ameritrans has paid dividends to its
stockholders since its inception with the exception of the three month periods
ended June 30, 2000, September 30, 2000 and March 31, 2003.
Because it is an SBIC, Elk's operations are subject to other restrictions,
and all loans and investments must comply with applicable SBA Regulations. For
example, the interest rate that Elk can charge, the percentage of any other
company it can own, the size of the businesses to which it can make loans, and
the length of time to the maturity date are limited by SBA rules. Elk's business
is funded by loans from banks and, to a lesser extent, by the proceeds of
subordinated debentures issued to the SBA. Ameritrans is not an SBIC and is not
subject to SBA regulation. See "Elk's Loans" and "Regulation -- The Small
Business Act of 1958."
CURRENT BUSINESS ACTIVITIES
AMERITRANS. From inception through April, 2002, Ameritrans' only
activities were the operation of Elk. In May 2002, Ameritrans began making loans
to businesses using the proceeds raised from the Company's Unit Offering.
ELK. Elk was organized primarily to provide long-term loans to businesses
eligible for investments by SBICs under the 1958 Act ("Small Business
Concerns"). Elk has made loans for financing the purchase or continued ownership
of taxi medallions, taxis and related assets.
-28-
Although Elk's certificate of incorporation provides Elk with the
authority to invest in the equity capital of Small Business Concerns, Elk makes
equity investments in Small Business Concerns on a selective basis, and only to
a limited extent. Equity securities in Elk's investment portfolio at March 31,
2003 totaled $797,502 or 1.29% of total assets. Elk may make additional equity
investments. However, unless necessary to protect a prior investment of Elk that
is at risk, equity investments shall not exceed 20% of Elk's total assets. Elk
has one (1) wholly-owned subsidiary, EAF Holding Corporation, formed in 1992,
the sole activities of which are to own and operate certain real estate assets
acquired in satisfaction of loans.
TAXI MEDALLION FINANCE INDUSTRY AND MARKET OVERVIEW
CHICAGO TAXI MEDALLION INDUSTRY AND MARKET. As part of its geographic
diversification strategy, Elk studied the Chicago taxi medallion market in 1994,
and began making loans in Chicago in April 1995. The taxi market and medallion
system in Chicago is regulated by the City of Chicago Department of Consumer
Services, Public Vehicle Operations Division. The number of taxi medallions is
limited by city ordinances, and until 1988, these ordinances gave control of the
majority of the medallions to the two largest taxi operators in Chicago, Yellow
Cab Co., and Checker Taxi Co., Inc.
Since 1988, the taxi industry in Chicago has shifted toward more
individual ownership. Over the succeeding 10 years, the Yellow Cab Co. and
Checker Taxi Co., Inc., pursuant to a new ordinance, gave 1,300 medallions back
to the City, and the City added 100 medallions each year. These medallions were
distributed in a lottery system to taxi drivers who had never owned a medallion.
By July 1997 there were a total of 5,700 medallions issued in Chicago, of which
Yellow Cab Co. owned approximately 2,071, and the remaining 3,629 were owned by
individual owner drivers, or by individual operators who had purchased multiple
medallions.
In December 1997, the City Council increased the number of medallions by
1,000 additional medallions, which were issued over a period of three years. Of
these medallions, 500 were issued in lotteries to taxi drivers who never owned a
medallion, and the other 500 were auctioned to the highest bidder. In the
November 1998 auction of 150 medallions, there were 499 bids to purchase
medallions. The winning bid prices ranged from $57,000 to $63,000 per medallion,
which was approximately the same as open market prices for taxi medallions that
were sold in Chicago at that time. In the August, 1999 auction of 150
medallions, the winning bid prices ranged from $65,000 to $70,000.
In October 2000, the City of Chicago held its final auction of 200
medallions under the program authorized in December 1997. The City set a minimum
bid of $60,000, and all 200 medallions were sold at auction at prices that
ranged from $60,000 to $68,000. In July 2000, the last 200 medallions authorized
under the lottery program were distributed by lottery.
In November 2000, the City Council passed a new ordinance authorizing the
City to auction up to 50 medallions per year through November 2004, representing
a total of 150 medallions over three years. The City Council, however, did not
authorize any further lotteries of medallions. The new ordinance also requires
purchasers of the medallions to operate a taxi-van instead of the standard
taxicab vehicle, which we believe will cost the medallion purchaser three times
as much to purchase, equip and prepare as compared to a standard taxicab. As a
result, we believe that the 150 medallions, when auctioned, will command lower
prices than the prices that would otherwise be available in the market place for
the purchase of medallions without the taxi-van requirement.
On January 21, 1999, the Yellow Cab Co. auctioned 175 medallions in a
sealed bid auction at prices equal to the current open market value price for
medallions. Subsequent to January 1999, Yellow Cab Company continued to sell
medallions that it owned, and we believe that they have sold approximately 800
additional medallions to owner drivers, who they continue to service in their
radio group, and through the Yellow Cab Company operations. We believe that the
sale of these additional medallions by Yellow to owner drivers will offer
additional financing opportunities for the Company to service their financing
needs.
Chicago regulations set forth certain qualifications that all owners of
taxi medallions must meet, and require that all security interests in medallions
be registered with the Department of Consumer Services. The Department of
-29-
Consumer Services also is involved (along with the City Council) in setting taxi
fares, and in setting maximum lease rates that may be charged by owners to
lessees of taxis, who drive them on a daily, weekly, or monthly basis.
CHICAGO MARKETING STRATEGY FOR MEDALLION FINANCING. At the present time,
most medallion sales in Chicago are handled through brokers or attorneys. An
active market place has developed in Chicago for the purchase and resale of
medallions. Due to the current economic difficulties in the Chicago market,
Elk's most recent experience was that medallions were selling for between
$50,000 and $60,000 per medallion, but Elk is presently selling its foreclosed
medallions for approximately $58,000 per medallion and it provides full
financing to the Purchaser. Previously, the City of Chicago imposed a 5%
transfer tax on a medallion held for two years or more, a 10% transfer tax on a
medallion held for between one and two years, and a 25% transfer tax on a
medallion held less than one year. In November 2000 this ordinance was reduced
to 10% for the first year and 5% thereafter, and imposed a flat 5% for any
foreclosure sale. The recent imposition of the transfer taxes, in addition to
being a source of revenue to Chicago, was also scaled in order to inhibit
speculation in the purchase and resale of taxi medallions without the intent of
actually operating taxis.
We are currently contemplating setting up a subsidiary corporation (or
corporations) to take title to 35 of our remaining foreclosure medallions, and
to thereafter lease them out to our taxi drivers on a 30-month lease, the terms
of which will also provide the lessee with an option to purchase the medallion
at $60,000, less credit given for payment of the option payment. In order to
lease the medallion, we will also purchase a taxi vehicle and lease the vehicle
to the operator as a finance lease whereby the operator will own the vehicle for
a nominal payment at the end of the 30-month term of the lease. By entering into
the lease program with options to purchase, we believe that we will maximize our
cash flow and develop a current income return on these assets that is favorable
when compared with the gross interest income we would receive on a similar
transaction that was structured as a sale with a loan by us to the purchaser.
We are also contemplating entering into an agreement with a large operator
of taxi medallions whereby we would take title to an additional 35 foreclosed
medallions and lease them to the medallion operator. Unlike the above structure,
the medallion operator would not be given an option to purchase the medallions.
Negotiations are presently underway with this medallion operator.
We are also continuing to finance taxi medallion transactions in Chicago
to our existing non-defaulting borrowers and to other potential borrowers who
qualify.
THE NEW YORK CITY TAXI MEDALLION INDUSTRY AND MARKET. Under current law,
the number of taxi medallions that may be issued by New York City is limited to
12,187. The City, however, has proposed selling an additional 900 medallions
over the course of three years. Under the proposal the City would auction 300
medallions each year. The New York City Taxi and Limousine Commission (the
"TLC") is presently conducting an environmental impact study on this plan.
There are two types of medallions: corporate and individual owner-driver.
Of the present total of 12,187 medallions, 7,058 are corporate medallions and
5,129 are for individually owned cabs. A corporate medallion is issued for a cab
owned by a corporation that owns a minimum of two cabs and two corporate
medallions (i.e., one corporate medallion per cab). An individual owner-driver
may not own more than one cab and one medallion. Corporate medallions are used
by large fleet concerns with many taxis and many drivers or by small
corporations owning at least two medallions and two taxis driven by two
owner-drivers (the so-called "minifleet").
Only 11,787 medallions could be issued until August 8, 1995, when a law
permitting the issuance of up to 400 additional taxi medallions over a
three-year period went into effect. The TLC conducted the sale of 133 medallions
in May 1996, 133 medallions in October 1996, and 134 medallions on October 1,
1997. Of these new medallions, 160 were sold to individuals and the balance to
minifleets in lots of two.
At the present time, most medallion sales are handled through brokers. As
a result, an active marketplace has developed for the purchase and resale of
medallions. The price of a medallion varies with supply and demand. Elk's most
recent experience, in May 2003, was that individually owned medallions sold
for approximately $223,000 and corporate medallions sold for approximately
$262,000 each. In addition, a 5% New York City transfer tax and various
brokerage commissions are additional expenses incurred in the acquisition and
sale of a medallion.
Based upon statistics obtained from the TLC, from 1989 through 1998, the
number of corporate medallions that were resold by their holders varied each
year from approximately 245 to 440, which suggests that there were between 122
and 220 minifleet corporations in need of financing each year, while the number
of individual owner medallions sold each year varied from 250 to 415. Assuming
that a typical minifleet financing for purchases of medallions might involve a
sum of approximately $450,000, the dollar volume of New York City minifleet
financings might range from $55 million to $99 million a year. Assuming that a
typical individual medallion financing for a
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purchase of a medallion involves a sum of approximately $200,000, the dollar
volume of New York City individual medallion financing might range from $48
million to $88 million a year.
In addition to financings for purchases and sales of medallions, a
substantial market exists for refinancing the indebtedness of existing minifleet
or individual medallions. Management estimates this market to exceed that of the
market for financing transfers, and to be in excess of $100,000,000 per year.
A prospective medallion owner must meet the requirements of the TLC, which
approves all sales and transfers. In general, the requirements are that the
prospective owner have no criminal record, that the purchase funds be derived
from legitimate sources, and that the taxi vehicle and meter meet specifications
set by the TLC. Also required is a clearance from prior insurers of the seller
in the form of letters stating that there are no outstanding claims for personal
injuries in excess of insurance coverage.
NEW YORK MARKETING STRATEGY FOR MEDALLION FINANCING. Medallion transfers
in the New York City market are usually handled through medallion brokers, who
have frequent contact with taxi owners and drivers. Medallion brokers locate
buyers for sellers of medallions and sellers for buyers of medallions, and then
typically employ a financing broker to arrange for the financing of the
medallion purchases. In many cases the medallion broker and the financing broker
are the same party or related parties.
Elk has received a significant number of referrals from certain medallion
brokers in New York. Elk also receives referrals from financing brokers and its
borrowers. In addition, Elk occasionally places advertisements in local industry
newspapers and magazines. Elk also uses brokers, advertising and referrals in
connection with its taxi lending business in the Chicago, Boston, and Miami
markets.
BOSTON TAXI MEDALLION INDUSTRY AND MARKET. Elk began to review the Boston
taxi market in the fall of 1994 and began making loans in this market in 1995.
Since 1930, the Boston Police Commissioner has had exclusive jurisdiction over
the regulation of taxi operations, including the issuance and transfer of
medallions. The Hackney Carriage Unit of the Boston Police Department deals with
taxi regulatory issues.
By statute, the number of medallions issued in the City of Boston may not
exceed 1,525, subject to increase or decrease in the Police Commissioner's
discretion. The number of medallions remained essentially unchanged from the
late 1940's until January 1999, when the City sold 75 additional medallions at
auction. Prices at this auction exceeded $140,000 per medallion. The City of
Boston auctioned another 75 medallions in September 1999 and 57 medallions in
May of 2000. In 2001, the City sold an additional 20 medallions for handicap
use, bringing the total of outstanding medallions to approximately 1790. Current
market prices of Boston medallions are approximately $200,000.
Under the applicable statutes and rules, Boston taxi medallions are
assignable, subject to the approval of the Police Commissioner. In practice,
transfer applications are submitted to the Hackney Carriage Unit, which has
issued guidelines and forms for transfers. Loans by financial institutions or
individuals are secured by taxi medallions and assets are routinely allowed in
accordance with the Hackney Carriage Unit's "Procedures for Recording Secured
Party Interest."
BOSTON MARKETING STRATEGY FOR MEDALLION FINANCING. The Boston taxi market
services the City of Boston, which includes Logan Airport. Elk's marketing
efforts have included retention of a local attorney, advertising in the Carriage
News, a local trade newspaper, and the use of forwarding brokers. As of March
31, 2003, the total principal amount of our outstanding taxi loans in Boston was
$1,908,073.
MEDALLION INDUSTRY IN METRO-DADE COUNTY, (MIAMI AREA), FLORIDA. Elk began
to investigate the Miami area taxi market in 1995, and began making loans in
1996. The Miami taxi industry has been regulated on a county-wide basis in
Metro-Dade County, Florida since 1981. The Passenger Transportation Regulatory
Division (the "PTRD") of the Metro-Dade County Consumer Services Division
oversees taxi operations and licenses in accordance with the Metro-Dade County
Code.
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Until April 1999, each taxi operator in Metro-Dade County was required to
obtain a "For-Hire" license. The number of licenses was limited to one license
for each 1,000 residents in the county. With approximately 2,100,000 residents
in the county, 2,100 licenses could have been issued; however, 1879 have been
issued to date and 27 are pending. In 1991, a For-Hire license loan program was
approved, authorizing the use of loans to purchase (but not to refinance)
licenses and taxis. Any lender must be a licensed lending institution authorized
to do business in Florida. To the best of our knowledge, Elk is currently one of
only six lending institutions that are authorized to make loans to the taxi
industry in Metro-Dade County. Transfers of licenses and financing arrangements
are subject to prior approval by the PTRD and the County Board of Commissioners.
For-Hire licenses were considered a privilege, not a property right.
However, since licenses were limited in number, the marketplace created a
"market price" or value in connection with the transfer of the license right to
a purchaser. As of April 1999, the Metro-Dade County Code was amended to create
a "medallion," or property right, system with a view to attracting traditional
financing providers to provide the taxi industry with additional funding
sources. Existing For-Hire licenses were automatically converted into
medallions.
According to official Metro-Dade County publications issued in the year
2000, approximately one-third of the currently outstanding licenses are owned by
individuals or corporations that own and operate only one license. Other than
106 licenses held by one owner, the balance of the licenses are owned mainly by
holders of two to five licenses. The number of license transfers has been
generally increasing in recent years, with a high of 197 transfers in 1997, with
an average reported price of $51,658. Market prices have increased substantially
since 1997. We believe that the present market price of licenses/medallions in
Metro-Dade County as of May, 2003 is between $115,000 to $120,000 per medallion.
MIAMI AREA MARKETING STRATEGY FOR MEDALLION FINANCING. We believe that the
recent change to a medallion system and an emphasis on individual
operator-ownership of medallions for the future will open a large new market for
taxi medallion financing in the Miami area. Since this is an emerging market, we
are currently developing strategies to develop contacts and market our financing
to potential purchases of medallions, and in the event refinancing is permitted,
to those owners who may wish to refinance their medallions in the future. As of
March 31, 2003, the total principal amount of our outstanding taxi loans in the
Miami area was $3,002,007.
COMMERCIAL (NON-TAXI) LOANS -- OVERVIEW
Elk began making loans to diversified (non-taxi) small businesses
("Commercial Loans") in the New York City metropolitan area in 1985, in order to
diversify its loan portfolio, which until that time had consisted almost
entirely of loans to owners of New York City taxi medallions. After a period of
losses in its Commercial Loan portfolio from 1991 to 1994, Elk has been
increasing this portfolio on a selective basis since 1995, with a concentration
on loans to operators of retail dry cleaners and laundromats. Recently, Elk has
also begun geographically expanding its Commercial Loan portfolio, with loans in
South Florida, Massachusetts, and North Carolina.
Elk has chosen to concentrate its Commercial Loan portfolio in loans
secured by retail dry cleaning and coin-operated laundromat equipment because of
certain characteristics similar to taxi medallion lending that make these
industries attractive candidates for profitable lending. These factors include:
(i) relatively high fixed rates of interest ranging from approximately 325 to
700 basis points over the prevailing Prime Rate at the time of origination, (ii)
low historical repossession rates, (iii) vendor recourse in some cases, (iv)
significant equity investments by borrowers, (v) an active market for
repossessed equipment, and for resale of businesses as going concerns through
transfers of the leasehold and business equipment to new operators, and (vi) a
collateral service life that is frequently twice as long as the term of the
loans. We estimate that there are approximately 4,000 retail dry cleaners and
approximately 3,000 laundromats in the New York City metropolitan area. In
addition, we believe that specialization in the dry cleaning and laundromat
industries will permit relatively low administrative costs because documentation
and terms of credit are standardized, and the consistency among the loans has
simplified credit review and portfolio analysis.
We further believe that other niche industries with similar
characteristics will provide additional loan portfolio growth opportunities.
Elk's other Commercial Loans are currently spread among other industries,
including auto sales, retirement home, commercial construction, car wash,
theater, restaurant, and financial services.
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Elk's Commercial Loans finance either the purchase of the equipment and
related assets necessary to open a new business or the purchase or improvement
of an existing business, and Elk has originated Commercial Loans in principal
amounts up to $1,000,000. Elk generally retains these loans, although from time
to time it sells participation interests in its loans to diversify risk, or
purchases participation interests in loans generated by other SBICs.
ELK'S LOANS
Elk's primary business has been to provide long-term business loans at
commercially competitive interest rates (which at March 31, 2003, ranged from
6.0% to 18% per annum). From 1979 through March 1997, Elk was a "Specialized
Small Business Investment Company" ("SSBIC") under the rules of the SBA. All of
its loans were required to be made to small businesses that were majority-owned
by socially or economically disadvantaged persons, known as "Disadvantaged
Concerns." In September 1996, the 1958 Act was amended to provide, among other
things, that no further subsidized funding would be made available to SSBICs.
Consequently, Elk amended its Certificate of Incorporation and entered into an
agreement with the SBA in February 1997 in order to convert Elk from an SSBIC to
an SBIC. As such, Elk may now lend to persons who are not Disadvantaged
Concerns. As of March 31, 2003 more than 90% of Elk's loans and investments were
to Disadvantaged Concerns.
Elk intends to continue to make loans to Disadvantaged Concerns,
particularly in connection with the ownership of taxis and related assets in the
New York City and Chicago markets. Elk also intends to diversify its activities
by lending and investing in a broader range of Small Business Concerns.
SBA Regulations set forth a ceiling on the interest rates that an SBIC may
charge its borrowers. Under the current SBA Regulations, the basic maximum rate
of interest that an SBIC may charge is 19%. However, if either the weighted
average cost of the SBIC's qualified borrowings, as determined pursuant to SBA
Regulations, or the SBA's current debenture interest rate, plus, in either case,
11% and rounded off to the next lower eighth of 1%, is higher, the SBIC may
charge the higher rate. The maximum rate of interest that Elk was allowed to
charge its borrowers for loans originated during March, 2003 was 19%. See
"Regulation -- The Small Business Act of 1958."
Elk has agreed with the SBA that it must maintain a non-taxi
investment/loan portfolio (included with the combination of its assets acquired
and receivables on assets acquired in the future) in an amount not less than its
outstanding SBA guaranteed leverage (i.e., debentures) issued since 1995, which
amount is currently $2,470,000. See "Investment Policies -- Elk's Investment
Policies -- Concentration of Investments."
Elk may revise the nature of its loan portfolio at such time as its Board
of Directors determines that such revision is in the best interests of Elk. Elk
does not currently anticipate that its loan portfolio will realize an annual
turnover in excess of 50%. Elk will not lend to, or otherwise invest more than
the lesser of (i) 10% of its total assets, or (ii) 30% of its paid-in capital
attributable to its Common Stock in any one Small Business Concern. Elk has not
made, and is prohibited by applicable SBA Regulations from making, loans to
officers, directors or principal stockholders of Elk or "associates" of Elk, as
such term is defined in applicable SBA Regulations.
TAXI MEDALLION FINANCING LOANS
A large portion of Elk's loans have been made to purchasers or owners of
New York City taxi medallions. Since Elk commenced operations it has made over
$175,000,000 of such loans. However, the New York market has become increasingly
more competitive in recent years. In New York City, medallion prices dropped
from $223,000 in July, 2000 for individual medallions to $200,000 as of
September, 2002. Prices for individual medallions increased to $223,000 by May
2003. Prices in New York for corporate medallions fell from $257,000 per
medallion in July, 2000 to $230,000 in September, 2002, and have since risen to
$262,000 per medallion by May 2003. Interest rates in the New York City market
for taxi loans have recently dropped to six percent (6%) per annum. This has
limited Elk's opportunities to make profitable loans or expand its activities in
this market.
In 1995 and 1996 Elk began expanding its taxi lending business into the
Chicago, Boston, and Miami markets, where its taxi lending business has
increased and continued to be profitable. During the time Elk has been making
taxi
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loans in these markets, the market prices of medallions have generally been
increasing. However, in Chicago the market price for medallions dropped
approximately 15% during the fiscal year ended June 30, 2001. Since April 1995
when Elk began making loans in the Chicago taxi medallion market, the market
value of a medallion increased from approximately $32,000 to a high of
approximately $68,000. From July, 2000 through June, 2002, the market value of a
Chicago taxi medallion decreased to approximately $50,000 to $60,000, depending
on the terms and conditions of the cash or financed sale. As of the date of this
Prospectus, medallions are selling for approximately $50,000 to $60,000 per
medallion. During the time Elk has been making taxi loans in Boston and the
Miami area, the market price of medallions has increased from approximately
$90,000 to $200,000 in Boston and from approximately $65,000 to between $115,000
and $120,000 in Miami.
As of March 31, 2003, $14,140,910, or 24.8%, of the aggregate principal
amount of its outstanding loans of $56,973,994, represented loans made to
finance the purchase or continued ownership of New York City taxi medallions and
related assets; an aggregate of $23,652,202, or 41.5%, consisted of loans to
finance the purchase or refinancing of taxi medallions in Chicago, and the
balance of $19,180,882 or 33.7% consisted of loans to various commercial
borrowers, of which $1,908,073, or 3.3%, was invested in Boston taxi medallion
financing and $3,002,007, or 5.3%, was invested in Miami taxi medallion
financing. See " -- Loan Portfolio; Valuation," below.
Due to increasing competition, annual interest rates for new loans in the
New York market are currently averaging 6.0%. Interest rates on Chicago taxi
loans generally have ranged from 10% to 14% per year. With additional
competition presently in the market place, it is expected that rates will range
in the near term from 10% to 12% per year on new loans, depending upon the size
of the loan, the repayment schedule, the balloon dates, the loan-to-value ratio,
and the credit history of the borrower. In addition, most recent loans that Elk
has made in Chicago have been for six to eight year terms and are
self-amortizing. With increased competition in the market, the term of the loan
may be expected to increase to periods longer than six years. Interest rates on
loans in the Boston market currently range from 9-13%, and in the Miami market
currently range from 10-13%.
COMMERCIAL LOAN PORTFOLIO
Ameritrans began making diversified Commercial Loans in May 2002. At March
31, 2003, Ameritrans' Commercial Loan portfolio consisted of five loans totaling
$690,155, of which two loans totaling $560,978 were to debt collection
businesses, one loan for $60,000 was for real estate investment and two loans
for $69,176 was invested to Miami taxi medallion financing. The proceeds of the
loans to the debt collection businesses were used to purchase interest in a pool
of charged off credit card receivables.
Elk began making non-taxi Commercial Loans in 1985. Due to the effects of
the nationwide recession of the early 1990's on the New York City metropolitan
area economy, between 1990 and 1994 Elk suffered significant losses in its
Commercial Loan portfolio. These losses were primarily written off against
income earned by Elk on its taxi loan portfolio. By 1995, the local economy had
improved and Elk again began making selective Commercial Loans, and its
activities in this area have been increasing steadily. At June 30, 1995, Elk's
Commercial Loans totaled $1,275,654, or 5.5%, of Elk's total loan portfolio,
while at March 31, 2003, Elk's Commercial Loans totaled $13,649,824, or 24.3%,
of Elk's total loan portfolio. For the nine months ended March 31, 2003, the
Company had write off and depreciation of interest and loans receivable of
$412,884. On July 1, 2001, the Company had a beginning balance in its reserve of
loss account of $318,500. For the year ended June 30, 2002, the Company took
charge offs from the reserves of $80,000. This resulted in the ending balance of
the reserve for loss account at June 30, 2002 and March 31, 2003 of $238,500.
During the fiscal year ended 2002, the Company had total write off and
depreciation on interest and loans receivable of $393,145.
At March 31, 2003, Elk's Commercial Loan portfolio consisted of 86 loans,
of which 17 loans totaling $1,179,970 were to dry-cleaning businesses, 32 loans
totaling $6,571,251 were to laundromat businesses, and 37 loans totaling
$5,898,603 were to a variety of other small businesses. Loans to dry cleaners
and laundromats represented 56.8% of the aggregate principal amount of Elk's
Commercial Loans outstanding at March 31, 2003.
Elk generally originates Commercial Loans by financing the cost of dry
cleaning, laundromat or other business-specific equipment, while the borrower is
making an equity investment to finance the cost of installation, building of
appropriate infrastructure to support the equipment, installation of other
equipment necessary for the
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business operations, other decorations and working capital. Substantially all
Commercial Loans are collateralized by first security interests in the assets
being financed by the borrower, or by real estate mortgages. In addition, Elk
generally requires personal guaranties from the principals of the borrower and
in limited cases obtains recourse guaranties from the equipment vendors.
Elk's Commercial Loans typically require equal monthly payments covering
accrued interest and amortization of principal over a four to eight year term
and generally can be prepaid with a fee of 60 to 90 days of interest during the
first several years of the loan. The term of, and interest rate charged on,
Elk's Commercial Loans are subject to SBA Regulations.
Elk generally obtains interest rates on its Commercial Loans that are
higher than it can obtain on New York City taxi medallion loans. The Company
believes that the increased yield on Commercial Loans compensate for their
higher risk relative to medallion loans and that it will benefit from the
diversification of its portfolio. Interest rates on currently outstanding
Commercial Loans range from 7% to 18%.
In addition to its loan portfolio, Ameritrans has purchased limited
partnership interests in four different properties that are multi-family, luxury
garden apartment complexes in the Houston metropolitan area aggregating $233,200
invested. In addition, Ameritrans, through Elk, recently invested $310,000 in a
limited liability company which owns and operates a hotel in Arlington,
Virginia.
LOAN PORTFOLIO; VALUATION
The following table sets forth a classification of the Company's
outstanding loans as of March 31, 2003:
Type of Loan Number Interest Maturity Dates Balance
- ------------ of Loans Rates (In Months) Outstanding
-------- ----- ----------- -----------
New York City:
Taxi medallion.................... 67 6 - 16% 2 - 239 $14,002,782
Radio car service................. 16 11 - 15% 3 - 48 138,128
Chicago:
Taxi medallion.................... 461 9.9 - 16% 1 - 143 23,652,202
Boston:
Taxi medallion.................... 15 9 - 11% 1 - 179 1,908,073
Miami:
Taxi medallion.................... 80 10.5 - 16% 9 - 104 3,002,007
Other loans:
Restaurant........................ 7 10 - 15% 27 - 117 905,415
Car Wash/Auto Center.............. 5 8 - 15% 23 - 50 636,532
Dry Cleaner....................... 17 9.5 - 18% 15 - 87 1,179,970
Laundromat........................ 32 7.5 - 18% 20 - 84 6,571,251
Financial Services................ 1 14% 108 252,781
Black Car Service (real property). 2 10.5 - 11% 39 399,661
Auto Sales........................ 6 11 - 13% 9 - 87 627,207
Movie Theater..................... 1 16% 108 169,478
Retirement home................... 2 13.5 - 14.5% 84 - 114 237,321
Commercial construction........... 4 13 - 16% 39 - 54 976,943
Telecommunications................ 1 12% 33 76,997
Leather Goods..................... 1 16% 50 187,202
Beverage distributor.............. 1 14.5% 163 193,331
Marina............................ 1 14.5% 42 218,446
Plumbing & heating supplies....... 1 14% 97 137,350
Real Estate....................... 2 13.5% 48 - 64 175,221
Florist........................... 1 7.25% 109 374,236
Food Market....................... 2 12 - 16% 73 - 114 390,482
Debt Collection................... 2 17.5% 27 560,978
-----------
Total Loans Receivable 56,973,994
Less: Allowance for loan losses (238,500)
-----------
Loans Receivable, net $56,735,494
===========
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Loans made by Elk to finance the purchase or continued ownership of taxi
medallions, taxis and related assets are typically secured by such medallions,
taxis and related assets. Loans made by Ameritrans and Elk to finance the
acquisition and/or operation of retail, service or manufacturing businesses are
typically secured by real estate and other assets. In the case of loans to
corporate owners, the loans are usually personally guaranteed by the
stockholders of the borrower. Elk generally obtains first mortgages, but
occasionally has participated in certain financings where it has obtained a
second mortgage on collateral. Elk has obtained a relatively higher rate of
interest in connection with these subordinated financings. Elk has not, to date,
committed more than 5% of its assets to any one business concern in its
portfolio. The interest rates charged by Elk on its currently outstanding loans
range from 6% to 18% per annum. As of March 31, 2003, the annual weighted
average interest rate on Elk's loans was approximately 11%. The average term of
Elk's currently outstanding loans is approximately 48 months.
VALUATION -- As an SBIC, Elk is required by applicable SBA Regulations to
submit to the SBA semi-annual valuations of its investment portfolio, as
determined by its Board of Directors, which considers numerous factors including
but not limited to the financial strength of its borrowers to determine "good"
or "bad" status, and fluctuations in interest rates to determine marketability
of loans. Reference is made to Footnotes 1, 2 and 3 of Notes to Financial
Statements for a discussion of Elk's method of valuation of its current
portfolio of loans. In the event Elk invests in securities for which price
quotations are readily available, Elk will value such investments at their fair
market value, based on such quoted prices. With respect to securities for which
price quotations are not readily available, such securities will be valued at
fair market value as determined by the Board of Directors.
COLLECTION EXPERIENCE -- Elk has not had a material loss of principal in
any taxi medallion loan except with the Chicago taxi loan defaults in the past
year. From time to time, Elk has also experienced some small losses of principal
on its taxi lending operations. Elk has also experienced some losses of
principal in its diversified (non-taxi) loan portfolio. Likewise, its collection
experience (timely payments, collections on foreclosure, etc.) with taxi
medallion financings has historically been better than with its non-taxi loans.
From 1991 through 1994, substantially all of Elk's provisions for loan losses
and losses on assets acquired were related to business loans secured by real
estate and to radio car loans. In addition, from 1991 through 1995, Elk had
difficulty selling off real estate acquired on defaulted loans as a result of a
depressed real estate market. Since 1995, Elk has substantially increased its
diversified loan portfolio, and its overall collection experience with these
loans has improved, although it has experienced losses on selective loans.
During the twenty (20) months since September 11, 2001, the Chicago taxi
market has suffered through an economic slowdown which caused approximately 25%
of our Chicago taxi loans to default and the Company to commence foreclosure
actions. Approximately one-half of the foreclosures and resales have been
completed by this time. When the tragic events of September 11, 2001 occurred,
the Chicago market was in the process of absorbing 1,000 new medallions that had
been sold by the city over the past three years. As a result of the increase in
supply of medallions and the reduction in demand for service, and corresponding
reduction in revenues by taxi operators, the Company, as well as other lenders
in the Chicago taxi medallion lending market, experienced a greater rate of
default in their Chicago loan portfolio than they had previously. It also became
more difficult to resell these medallions due to the fall in their market prices
from their high of $68,000 to $70,000 per medallion.
Market conditions began to improve during the first six months of 2002,
during which the Company sold some of its defaulted medallions directly to
buyers and through an arrangement with the Checker Taxi Association, Inc. By
June 30, 2002, the Company had resold 30 Chicago taxi medallions. During the
nine months ended March 31, 2003, an additional 28 Chicago taxi medallions were
resold. In addition to the medallion sales, taxi owners who had defaulted were
able to reinstate their loans after paying certain fees and executing loan
modification and reinstatement agreements, and, accordingly, began operating
their taxis again.
As a result of the softness in the Chicago taxi market during the fiscal
year ended June 30, 2002, the Company charged off a total of $62,881 of
principal on the Chicago loan portfolio, of which $48,604 was due to losses on
12
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completed medallion foreclosure sales of Chicago medallions. For the nine months
ended March 31, 2003, the Company charged off a total of $52,213 of principal on
the Chicago loan portfolio of which $50,018 was due to losses on 14 completed
foreclosure sales of Chicago medallions. The Company also wrote off $114,928 of
accrued interest on all of the 30 completed Chicago foreclosed medallion loans,
and did not accrue an additional $38,145 of interest on certain of the
foreclosed Chicago medallion loans for the year ended June 30, 2002. The Company
also incurred $126,565 of foreclosure expenses for the year ended June 30, 2002.
These expenses arose as the Company satisfied outstanding balances with the City
of Chicago on defaulted loans, which was required before the Company could
repossess and resell the medallions. In addition, for the year ended June 30,
2002, the Company increased its unrealized depreciation on interest receivable
for potential losses on the remaining Chicago taxi medallion loans that were in
default by an additional net amount of $206,272. For the nine months ended March
31, 2003, the Company wrote off $189,362 of accrued interest on the completed
Chicago foreclosed medallion loans, and did not accrue an additional $40,817 of
interest on certain foreclosed Chicago Medallion loans. The Company incurred
$281,838 of foreclosure expenses for nine months ended March 31, 2003. For the
nine months ended March 31, 2003, the unrealized depreciation on interest
receivable was increased to $399,000.
SOURCES OF FUNDS
Elk is authorized to borrow money and issue debentures, promissory notes
and other obligations, subject to SBA regulatory limitations. Other than the
subordinated debentures issued to the SBA, Elk has to date borrowed funds only
from banks. As of March 31, 2003, Elk maintained three lines of credit totaling
$40,000,000 with an overall lending limit of $40,000,000. At March 31, 2003, Elk
had $35,780,000 outstanding under these lines. The loans, which mature through
November 2003, bear interest based on the Company's choice of the lower of
either the reserve adjusted LIBOR rate plus 150 basis points or the banks' prime
rates minus 1/2% plus certain fees as of March 31, 2003. Upon maturity, Elk
anticipates extending the lines of credit for another year as has been the
practice in previous years. Pursuant to the terms of the loan agreements, Elk is
required to comply with certain terms, covenants and conditions, and has pledged
its loans receivable and other assets as collateral for the above lines of
credit.
During 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. As of June 30, 2002,
no amount has been drawn on this commitment. Subsequently, in July 2002, a new
debenture payable to the SBA was drawn from the reserved pool of $12,000,000 in
the amount of $2,050,000 with an interim interest rate of 2.351%. The fixed rate
of 4.67% was determined on the pooling date of September 25, 2002. In addition
to the fixed rate, there is an additional annual SBA user fee of $0.87% per
annum that will also be changed making the rate 5.54% before applicable
amortization of points and fees. In December 2002, another new debenture payable
to the SBA was drawn in the amount of $3,000,000 with an interim interest rate
of 1.927%. The fixed rate of 4.63% was set by the SBA on March 26, 2003 and
there is also an additional SBA user fee of $0.87% per annum that will be
charged.
If interest rates rise, our cost of funds would increase while the rates
on our outstanding loans to our borrowers remained fixed, and, accordingly, our
profitability would decrease. In order to partially contain this risk, we have
purchased interest rate caps and interest rate swaps. While these limit our
exposure to upward movement in interest rates on our bank loans, they initially
increase the effective interest rates that we pay on loans subject to these
agreements. However, general rises in interest rates will reduce our interest
rate spread in the short term on the floating portion of our bank debt that is
not covered by interest rate caps or interest rate swaps. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations -- Interest Expense" and Note 12 of Notes to Consolidated
Financial Statements.
Pursuant to the SBA Agreement, Elk agreed to limit the aggregate of its
indebtedness based on a computation of a borrowing base each quarter. The
borrowing base computation is calculated to determine that the total amount of
debt due on the senior bank debt and SBA debentures does not exceed
approximately 80% of the value of performing loans and investments in Elk's
portfolio and on a temporary basis, until March 1, 2002, up to 85% of performing
taxi medallion loans. Loans that are more than 90 days in arrears are valued at
a lower amount in computing the borrowing base.
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In connection with the SBA Agreement, Elk has also entered into an
intercreditor agreement (the "Intercreditor Agreement") and a custodian
agreement (the "Custodian Agreement") with its banks and the SBA. Pursuant to
the Custodian Agreement, the banks and the SBA-appointed Israel Discount Bank of
New York as the custodian to hold certain notes, security agreements, financing
statements, assignments of financing statements, and other instruments and
securities as part of the collateral for Elk's indebtedness to the banks and the
SBA. The Intercreditor Agreement sets forth the respective rights and priorities
of the banks and the SBA with respect to the repayment of indebtedness to the
banks and the SBA and as to their respective interests in the collateral.
Pursuant to the Intercreditor Agreement, the banks consented to the grant by Elk
to the SBA of a security interest in the collateral, which security interest
ranks junior in priority to the security interests of the banks.
SBIC BENEFITS
GENERAL. As an SBIC, Elk is eligible to receive certain financing from the
SBA on favorable terms, and Elk and its stockholder are entitled to certain tax
benefits, both described below. The SBA has a certain amount of discretion in
determining the type and amount of financing that will be made available to an
SBIC. Therefore, there can be no assurance as to the nature and amount of SBA
financing that may actually be obtained by Elk. Furthermore, there are certain
restrictions and requirements to which Elk is subject by virtue of it being an
SBIC.
BACKGROUND. SBICs were created under the 1958 Act as vehicles for
providing equity capital, long-term loan funds and management assistance to
small businesses. In general, the SBA considers a business to be "small," and
therefore eligible to receive loans from an SBIC, only if (i) its net worth does
not exceed $18,000,000 and if the average of its net annual income after taxes
for the preceding two years was not more than $6,000,000 or (ii) it meets the
size standard for the industry in which it is primarily engaged, pursuant to SBA
Regulations. In addition, an SBIC is required to allocate a portion of its
portfolio to the financing of concerns that (i) together with their affiliates
do not have net worth in excess of $6 million and do not have an average net
income after taxes for the preceding two years in excess of $2 million or (ii)
meet the size standard for the industry in which they are primarily engaged.
SBICs are licensed, regulated, and sometimes partially financed, by the SBA.
BENEFITS. The principal benefits to Elk of being licensed as an SBIC are
as follows:
The SBA is authorized to guaranty full repayment of all principal and
interest on debentures issued by an SBIC to the extent of 300% of the SBIC's
"Leverageable Capital," as defined in the applicable SBA Regulations. However,
the percentage of allowable leverage decreases if the SBIC's Leverageable
Capital exceeds $15,000,000. The term of such debentures is typically 10 years.
The SBA will guarantee such debentures only after such an SBIC has demonstrated
a need for such debentures as evidenced by the SBIC's investment activity and
its lack of sufficient funds available for investments; provided, however, that
an SBIC that has invested at least 50% of its Leverageable Capital and
outstanding leverage shall be presumed to lack sufficient funds available for
investment. Generally, such debentures will bear interest at a fixed rate that
is based on the rate which is set by the underwriters of the pooled debentures
sold through SBIC Funding Corp.
With respect to debentures guaranteed after July 1, 1991, the SBA's claim
against an SBIC is subordinated, in the event of such SBIC's insolvency, only in
favor of present and future indebtedness outstanding to lenders and only to the
extent that the aggregate amount of such indebtedness does not exceed the lesser
of 200% of such SBIC's paid-in capital and paid-in surplus (as adjusted pursuant
to SBA Regulations), or $10,000,000. However, the SBA may agree to a
subordination in favor of one or more loans from certain lenders, in its sole
discretion. Pursuant to the SBA Agreement and the Intercreditor Agreement, the
SBA agreed to a subordination in favor of Elk's banks; provided, however, that
Elk is required to keep its overall debt to certain levels based upon the
performance of its portfolio.
COMPETITION
Banks, credit unions, other finance companies, some of which are SBICs,
and other private lenders compete with Elk in the origination of taxi medallion
loans and commercial installment loans. Finance subsidiaries of equipment
manufacturers also compete with Elk. Many of these competitors have greater
resources than Elk and certain competitors are subject to less restrictive
regulations than Elk. As a result, Elk expects to continue to encounter
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substantial competition from such lenders. Therefore, there can be no assurance
that Elk will be able to identify and complete financing transactions that will
permit it to compete successfully.
EMPLOYEES
As of March 31, 2003, we employed a total of nine employees.
INVESTMENT POLICIES
ELK INVESTMENT POLICIES
The investment policies described below are the fundamental policies of
Elk. Under the 1940 Act, these policies may be changed only by the vote of the
lesser of (i) a majority of Elk's outstanding Common Stock, or (ii) 67% of the
number of shares of Common Stock present in person or by proxy at a stockholder
meeting at which at least 50% of the outstanding shares of Common Stock are
present. Because Ameritrans is the only stockholder of Elk, we have agreed with
the SEC that Elk's fundamental investment policies will be changed only by the
vote of the Ameritrans stockholders.
(a) ISSUANCE OF SENIOR SECURITIES. Elk may issue subordinated debentures
to the SBA in the maximum amounts permissible under the 1958 Act and the
applicable regulations. Elk currently does not have any preferred stock
authorized.
(b) BORROWING OF MONEY. Elk has the power to borrow funds from banks,
trust companies, other financial institutions, the SBA or any successor agency
and/or other private or governmental sources, if determined by Elk's Board of
Directors to be in its best interests.
(c) UNDERWRITING. Elk has not engaged, and does not intend to engage, in
the business of underwriting the securities of other issuers.
(d) CONCENTRATION OF INVESTMENTS. Elk may not concentrate 25% or more of
its total assets in securities of issuers in any industry group except the taxi
industry. Elk will make at least 25% of its investments for financing the
purchase or continued ownership of taxi medallions, taxis and related assets.
The balance of its investments includes, and Elk intends to continue to finance,
the acquisition and/or operation of other small businesses.
(e) REAL ESTATE. Elk has not engaged, and does not intend to engage, in
the purchase and sale of real estate. However, Elk may elect to purchase and
sell real estate in order to protect any of its prior investments which it
considers at risk.
(f) COMMODITIES CONTRACTS. Elk has not engaged, and does not intend to
engage, in the purchase and sale of commodities or commodities contracts.
(g) LOANS. Elk has made, and will continue to make, loans to Small
Business Concerns in accordance with the provisions of the 1958 Act and the SBA
Regulations.
(h) WRITING OPTIONS. Elk has not engaged, and does not intend to engage,
in the writing of options.
(i) SHORT SALES. Elk has not engaged, and does not intend to engage, in
short sales of securities.
(j) PURCHASING SECURITIES ON MARGIN. Elk has not engaged, and does not
intend to engage, in the purchase of securities on margin.
(k) FUTURES CONTRACTS. Elk has not engaged, and does not intend to engage,
in the purchase or sale of futures contracts.
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(l) RESTRICTED SECURITIES. Elk may invest up to 100% of its assets in
restricted securities.
(m) TYPES OF INVESTMENTS. Although Elk was organized primarily to provide
long term loan funds to Small Business Concerns, Elk's certificate of
incorporation provides Elk with the authority to invest in the equity capital of
Small Business Concerns. Accordingly, Elk may make equity investments in Small
Business Concerns if determined by its Board of Directors to be in the best
interests of Elk.
(n) MAXIMUM INVESTMENT. Elk will not lend or otherwise invest more than
the lesser of (i) 10% of its total assets or (ii) 30% of its paid-in capital
attributable to its Common Stock with respect to any one Small Business Concern.
(o) PERCENTAGE OF VOTING SECURITIES. The percentage of voting securities
of any one Small Business Concern which Elk may acquire may not exceed 49% of
the outstanding voting equities of such Small Business Concern.
(p) MANAGEMENT CONTROL. Elk does not intend to invest in any company for
the purpose of exercising control of management. However, Elk may elect to
acquire control in order to protect any of its prior investments which it
considers at risk.
(q) INVESTMENT COMPANIES. Elk has not invested, and does not intend to
invest, in the securities of other investment companies.
(r) PORTFOLIO TURNOVER. Elk intends to make changes in its portfolio when,
in the judgment of its Board of Directors, such changes will be in the best
interest of our stockholders in light of the then existing business and
financial conditions. We do not anticipate that Elk's loan portfolio will
realize an annual turnover in excess of 50%, although there can be no assurance
with respect thereto.
AMERITRANS INVESTMENT POLICIES
Ameritrans' only fundamental policies, that is, policies that cannot be
changed without the approval of the holders of a majority of Ameritrans'
outstanding voting securities, as defined under the 1940 Act, are the
restrictions described below. A "majority of Ameritrans' outstanding voting
securities" as defined under the 1940 Act means the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented or (ii) more than 50% of the outstanding shares. The other
policies and investment restrictions referred to in this Prospectus, including
Ameritrans' investment objectives, are not fundamental policies of Ameritrans
and may be changed by Ameritrans' Board of Directors without stockholder
approval. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of Ameritrans' assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of Ameritrans' acquisition of such security or other asset.
Accordingly, any subsequent change in values, assets, or other circumstances
will not be considered when determining whether the investment complies with
Ameritrans' investment policies and limitations. Ameritrans' fundamental
policies are as follows:
(a) Ameritrans will at all times conduct its business so as to retain its
status as a BDC under the 1940 Act. In order to retain that status, Ameritrans
may not acquire any assets (other than non-investment assets necessary and
appropriate to its operations as a BDC) if, after giving effect to such
acquisition, the value of its "Qualifying Assets," amount to less than 70% of
the value of its total assets. See "Regulation."
(b) Ameritrans may borrow funds and issue "senior securities" to the
maximum extent permitted under the 1940 Act. As a BDC, Ameritrans may issue
senior securities if, immediately after such issuance, the senior securities
will have an asset coverage of at least 200%. Under the 1940 Act, subordinated
debentures issued to or guaranteed by the SBA, the preferred stock issued to the
SBA by Elk and Elk's bank borrowings may be considered senior securities issued
by Ameritrans requiring asset coverage of 200%; however, pursuant to an
Exemptive Order
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issued by the SEC on December 7, 1999, such debentures, preferred stock issued
to the SBA and bank borrowings are exempt from the asset coverage requirements
of the 1940 Act.
(c) Ameritrans will not (i) underwrite securities issued by others (except
to the extent that it may be considered an "underwriter" within the meaning of
the Securities Act in the disposition of restricted securities), (ii) engage in
short sales of securities, (iii) purchase securities on margin (except to the
extent that it may purchase securities with borrowed money), (iv) write or buy
put or call options, or (v) engage in the purchase or sale of commodities or
commodity contracts, including futures contracts (except where necessary in
working out distressed loan or investment situations). Ameritrans and Elk may
purchase interest rate caps and swaps covering up to 100% of their variable rate
debt. In addition, Ameritrans may sponsor the securitization of loan portfolios.
(d) Ameritrans and Elk may originate loans and loans with equity features.
To the extent permitted under the 1940 Act and the regulations promulgated
thereunder, Ameritrans may also make loans as permitted (i) under its existing
stock option plans, (ii) under plans providing for options for disinterested
directors that might be adopted by Ameritrans in the future, and (iii) to
officers and directors for the purchase of Ameritrans Common Stock.
(e) Ameritrans will hold all of the outstanding common stock of Elk and
Elk Capital and may organize additional subsidiaries in the future. Ameritrans
may acquire restricted securities of small businesses.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
directors and executive officers of the Company:
NAME ADDRESS POSITION
- ---- ------- --------
Gary C. Granoff(1)(2) c/o Ameritrans Capital Corporation President and Chairman of Board of
747 Third Avenue, 4th Floor Directors
New York, New York 10017
Ellen M. Walker(1)(2) c/o Ameritrans Capital Corporation Executive Vice President and Director
747 Third Avenue, 4th Floor
New York, New York 10017
Lee A. Forlenza(1)(2) c/o Ameritrans Capital Corporation Senior Vice President and Director
747 Third Avenue, 4th Floor
New York, New York 10017
Margaret Chance(2) c/o Ameritrans Capital Corporation Vice President and Secretary
747 Third Avenue, 4th Floor
New York, New York 10017
Silvia Mullens(2) c/o Ameritrans Capital Corporation Vice President
747 Third Avenue, 4th Floor
New York, New York 10017
Steven Etra(2) 55-25 58th Street Vice President and Director
Maspeth, New York
Paul Creditor 747 Third Avenue, Ste. 4C, New York, Director
New York
Allen Kaplan c/o Team Systems, 30-17 40th Avenue, Director
Long Island City, New York
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NAME ADDRESS POSITION
- ---- ------- --------
John Laird 481 Canoe Hill Road Director
New Canaan, Connecticut
Howard Sommer c/o New York Community Investment Co., Director
LLC, 110 Williams Street, 32nd Floor,
New York, NY
Wesley Finch c/o The Finch Group Director
1801 Clint Moore Road, Suite 210
Boca Raton, Florida 33487-2752
- -----------
(1) Ellen M. Walker, Gary C. Granoff and Lee A. Forlenza are officers and
shareholders in the law firm of Granoff, Walker & Forlenza, P.C.
(2) Mr. Gary C. Granoff, Ms. Ellen M. Walker, Mr. Lee A. Forlenza, Mr. Steven
Etra, Ms. Margaret Chance and Ms. Silvia Mullens are each "interested
persons" with respect to the Company, as such term is defined in the 1940
Act.
COMMITTEES OF THE BOARD AND MEETING ATTENDANCE
Ameritrans has a standing Audit Committee, a standing Compensation
Committee and a 1999 Employee Plan Committee.
The Audit Committee is presently comprised of Paul Creditor, John Laird
and Howard Sommer. The function of the Audit Committee is to review our internal
accounting control procedures, review our consolidated financial statements, and
review with the independent public accountants the results of their audit. The
Audit Committee held two meetings during fiscal 2002 and, to date, has held five
meetings during fiscal 2003.
The Compensation Committee reviews the Company's employment and
compensation agreements with its employees. The committee is comprised of Allen
Kaplan, John Laird, and Wesley Finch. The Compensation Committee was formed in
August, 2001 and has held two formal meetings.
The 1999 Employee Plan Committee administers the Company's 1999 Employee
stock option plan. The 1999 Employee Plan Committee is comprised of Allen Kaplan
and John Laird.
The Board of Directors held three formal meetings during fiscal 2002. Six
of the Board's directors attended each of the meetings of the Board, and three
directors missed one meeting each. The Board has held three meetings during
fiscal 2003.
EXECUTIVE COMPENSATION
The following table sets forth all remuneration for services rendered to
the Company to (i) each of the executive officers and (ii) all executive
officers as a group during the fiscal year ended June 30, 2002. No non-employee
director received compensation in excess of $60,000 during that period.
NAME AND PRINCIPAL POSITION CASH COMPENSATION(1) SEP BENEFIT(2)
- --------------------------- -------------------- --------------
Gary C. Granoff, President $ 258,250(3) $ 25,500
Ellen M. Walker, Executive Vice President
and General Counsel $ 115,800 $ 17,370
Lee A. Forlenza, Senior Vice President $ 51,500 $ 7,725
Steven Etra, Vice President $ 31,000 $ 0
Silvia Mullens, Vice President $ 100,522 $ 15,078
Margaret Chance, Vice President and Secretary $ 88,207 $ 13,231
All executive officers as a group (6 persons) $ 645,279 $ 78,904
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- ---------
(1) Officers' salaries constitute a major portion of Elk's total "management
fee compensation," which must be approved by the SBA. The SBA has approved
total officer and employee compensation of $648,000 for Elk. This amount
includes officers' salaries, other salaries and employee benefits.
(2) Simplified Employee Pension Plan.
(3) Does not include $35,000 of reimbursable expenses.
No stock options were granted to any named executive officer during the
fiscal year ended June 30, 2002.
Ameritrans and Elk have a policy of paying their directors who are not
employees fees of $750 for each meeting attended. Since July 1, 1996,
non-employee directors have been paid annual fees of $2,000 per year in addition
to the fees paid for each meeting attended. Fees and expenses paid to
non-affiliated directors were, in the aggregate, $36,875 for the year ended June
30, 2000, $19,750 for the year ended June 30, 2001, and $29,750 for the year
ended June 30, 2002.
EXECUTIVE COMPENSATION PROGRAM
Annual compensation for Ameritrans' executives consists of two principal
elements: cash compensation, consisting of salaries and bonuses, and stock
options.
CASH COMPENSATION
In setting the annual base salaries for Ameritrans' executives, the Board
of Directors reviews the aggregate salary and bonus compensation for individuals
in comparable positions with other companies, including competitors of
Ameritrans, and adjusts such amounts to reflect individual performance. Many of
these companies are specialty finance companies. Ameritrans also regularly
compares the salary levels of its executive officers with other lending
companies.
Increases in annual base salary are based on a review and evaluation of
the performance of the activity for which the executive has responsibility, the
impact of that activity on Ameritrans and the skills and experience required for
the job, coupled with a comparison of these elements with similar elements for
other executives both inside and outside Ameritrans.
Cash bonuses are tied directly to Ameritrans' financial performance and
the contribution of the executive to such performance.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with six of our employees. We
are required to disclose the terms of the agreements for five of those
individuals:
Gary Granoff. We entered into an amended and restated employment agreement
with Gary Granoff dated December 31, 2002, for a term of five (5) years
commencing July 1, 2003, which replaces the employment agreement by and between
the Company and Mr. Granoff dated July 1, 2001. The agreement automatically
renews for a five (5) year term, unless either party gives notice of non-renewal
as provided therein. The agreement provides that Mr. Granoff will be paid an
annual salary of $296,500 commencing July 1, 2003, which increases each year the
agreement is in effect. The agreement also provides that Mr. Granoff will be
paid a yearly bonus, based on his and Ameritrans'
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performance, an amount of which is determined by the Board of Directors but
which may not be less than $15,000 per year for the first five (5) years of the
employment agreement. If renewed, any bonus will be given solely in the Board's
discretion. The agreement also provides for compensation to Mr. Granoff if he is
terminated prior to the expiration of his employment term, the amount of which
varies depending upon the nature of his termination. If, for instance, Mr.
Granoff is terminated without cause (as defined in the agreement) he is entitled
to a lump-sum payment in an amount equal to (i) his salary, as in effect at the
time of termination, through the date of termination and an amount equal to his
salary multiplied by the number of years remaining under the agreement, and (ii)
an amount equal to all of the consulting fees payable under the terms of Mr.
Granoff's consulting agreement with Ameritrans, as discussed below. The
employment agreement also provides for confidentiality and for non-competition,
and non-solicitation during the term of the agreement and for one (1) year
thereafter.
In conjunction with the employment agreement we also entered into an
amended and restated consulting agreement with Mr. Granoff, which replaces the
consulting agreement by and between the Company and Mr. Granoff dated as of July
1, 2001. The consulting agreement does not become effective and does not
commence unless and until the employment agreement is terminated due to (i) Mr.
Granoff's voluntary resignation from the Company or (ii) a notice of non-renewal
of the employment agreement from either the Company or the Consultant. Upon the
effectiveness of the consulting agreement Mr. Granoff shall be paid as a
consultant at a rate equal to 1/2 the monthly salary in effect at the time the
employment agreement is terminated plus any bonus received, if any, for that
employment year and other benefits. The agreement also provides for
confidentiality and non-competition for the term of the agreement, and
non-solicitation during the term of the agreement and for one (1) year
thereafter.
Ellen Walker. We entered into an employment agreement with Ellen Walker
for a term of five (5) years dated as of October 1, 2001. The agreement
automatically renews for another five (5) year term unless either party
terminates prior to renewal. The agreement provides that Ms. Walker will be paid
an annual salary, which presently is $118,976, and increases each year the
agreement is in effect. The agreement also provides that Ms. Walker will be paid
a yearly bonus, at the discretion of Ameritrans, based on her and the Company's
performance. The agreement provides for compensation to Ms. Walker if she is
terminated prior to the expiration of her employment term, the exact amount of
which varies depending upon the nature of the termination. If, for instance, Ms.
Walker terminates the employment agreement for good reason (as defined in the
agreement) she is entitled to a lump-sum payment equal to the sum of her salary,
as in effect at the time of termination, and an amount equal to her salary
multiplied by the number of years remaining under the agreement or two-and-one
half years, whichever is greater. The agreement also provides for
confidentiality and for non-competition and non-solicitation during the term of
the agreement and for one (1) year thereafter.
Silvia Mullens. The agreement with Ms. Mullens is for a term of five years
dated as of January 1, 2002. The agreement automatically renews for another
five-year term unless either party terminates prior to renewal. The agreement
provides that Ms. Mullens will be paid an annual salary of $95,400, which
increases five percent (5%) each year the agreement is in effect. The agreement
also provides that Ms. Mullens will be paid a yearly bonus, at the discretion of
Ameritrans, based on her and the Company's performance. The agreement provides
for compensation to Ms. Mullens if she is terminated prior to the expiration of
her employment term, the exact amount of which varies depending upon the nature
of the termination. If, for instance, Ms. Mullens terminates the employment
agreement for good reason (as defined in the agreement), she is entitled to a
lump-sum payment equal to the sum of her salary, as in effect at the time of
termination, and an amount equal to her salary multiplied by the number of years
remaining under the agreement or two-and-one-half (2 1/2) years, whichever is
greater. The agreement also provides for confidentiality and for non-competition
and non-solicitation during the term of the agreement and for one year
thereafter.
Lee Forlenza. We entered into an amended and restated employment agreement
with Lee Forlenza dated December 31, 2002, for a five (5) year term commencing
as of July 1, 2003, which replaces the employment agreement by and between the
Company and Mr. Forlenza dated October 1, 2001. The agreement automatically
renews for a five (5) year term, unless either party gives notice of non-renewal
prior to the expiration of the initial term. The agreement provides that Mr.
Forlenza will be paid an annual salary of $76,250 commencing July 1, 2003, and
increases each year the agreement is in effect. The agreement also provides that
Mr. Forlenza will be paid a yearly bonus based on his and the Company's
performance, an amount of which is determined by the Board of Directors but
which may not be less than $10,000 for the first five (5) years of the
employment agreement, and an initial bonus of $7,500. If the employment
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agreement is renewed, any bonus after the initial term will be paid solely in
the discretion of the Board. The agreement provides for compensation to Mr.
Forlenza if he is terminated prior to the expiration of his employment term, the
exact amount of which varies depending upon the nature of the termination. If
Mr. Forlenza terminates the employment agreement for good reason (as defined in
the agreement, he is entitled to a lump-sum payment equal to the sum of his
salary, as in effect at the time of termination, and an amount equal to his
salary multiplied by the number of years remaining under the agreement or
two-and-one half years, whichever is greater. The agreement also provides for
confidentiality and for non-competition, and for non-solicitation during the
term of the agreement and for one (1) year thereafter.
Margaret Chance. The agreement with Ms. Chance is for a term of five (5)
years dated as of January 1, 2002. The agreement automatically renews for
another five-year term unless either party terminates prior to renewal. The
agreement provides that Ms. Chance will be paid an annual salary of $75,000,
which increases four percent (4%) each year the agreement is in effect. The
agreement also provides that Ms. Chance will be paid a yearly bonus, at the
discretion of Ameritrans but which shall not be less than $8,500 per year, based
on her and the Company's performance. The agreement provides for compensation to
Ms. Chance if she is terminated prior to the expiration of her employment term,
the exact amount of which varies depending upon the nature of the termination.
If, for instance, Ms. Chance terminates the employment agreement for good reason
(as defined in the agreement), she is entitled to a lump-sum payment equal to
the sum of her salary, as in effect at the time of termination, and an amount
equal to her salary multiplied by the number of years remaining under the
agreement or two-and-one-half (2 1/2) years, whichever is greater. The agreement
also provides for confidentiality and for non-competition and non-solicitation
during the term of the agreement and for one year thereafter.
STOCK OPTION PLANS
The descriptions of the 1999 Employee Plan and the Director Plan set forth
below are qualified in their entirety by reference to the text of the plans.
1999 EMPLOYEE PLAN
An employee stock option plan (the "1999 Employee Plan") was adopted by
the Ameritrans Board of Directors, including a majority of the non-interested
directors, and approved by a stockholder vote, in order to link the personal
interests of key employees to our long-term financial success and the growth of
stockholder value. The 1999 Employee Plan is substantially identical to, and the
successor to, an employee stock option plan adopted by the Board of Directors of
Elk and approved by its stockholders in September 1998 (the "1998 Elk Employee
Plan"). The 1999 Employee Plan was amended by the Board of Directors on November
14, 2001, and approved by the shareholders at the Annual Meeting on January 18,
2002. The amendment increases the number of shares reserved under the Plan from
125,000 shares to 200,000 shares.
The 1999 Employee Plan authorizes the grant of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code for the purchase
of an aggregate of 200,000 shares (subject to adjustment for stock splits and
similar capital changes) of Common Stock to our employees. By adopting the 1999
Employee Plan, the Board believes that we will be better able to attract,
motivate and retain as employees people upon whose judgment and special skills
our success in large measure depends. As of December 31, 2001, options to
purchase an aggregate of 100,000 shares of Common Stock had been granted to
various officers. These options were originally granted under the Elk 1998
Employee Plan. Options for 70,000 shares are exercisable for 10 years from the
date of grant at a price of $8.88 per share (the fair market value of the Common
Stock on the date of grant), and options for 30,000 shares are exercisable for
five (5) years from the date of grant at a price of $9.77 per share.
Accordingly, 100,000 shares of Common Stock are presently available for future
awards under the 1999 Employee Plan.
The 1999 Employee Plan is administered by the 1999 Employee Plan Committee
of the Board of Directors, which is comprised solely of non-employee directors
(who are "outside directors" within the meaning of Section 152(m) of the
Internal Revenue Code and "disinterested persons" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934 (the "1934 Act")). The committee
can make such rules and regulations and establish such procedures for the
administration of the 1999 Employee Plan as it deems appropriate.
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The exercise price of an incentive stock option must be at the fair market
value of our Common Stock on the date of grant (110% of the fair market value
for stockholders who, at the time the option is granted, own more than 10% of
the total combined classes of stock of Ameritrans or any subsidiary). An
employee may only receive incentive stock option tax treatment for options
exercisable up to $100,000, based upon the fair market value at the time of
grant, in any one year.
No option may have a term of more than ten years (five years for 10% or
greater stockholders). Options generally may be exercised only if the option
holder remains continuously associated with us or a subsidiary from the date of
grant to the date of exercise. However, options may be exercised upon
termination of employment or upon death or disability of any employee within
certain specified periods.
The following is a general summary of the federal income tax consequences
under current tax law of incentive stock options ("ISOs"). It does not purport
to cover all of the special rules, including special rules relating to persons
subject to the reporting requirements of Section 16 under the 1934 Act who do
not hold the shares acquired upon the exercise of an option for at least six
months after the date of grant of the option and special rules relating to the
exercise of an option with previously-acquired shares, or the state or local
income or other tax consequences inherent in the ownership and exercise of stock
options and the ownership and disposition of the underlying shares.
An optionee will not recognize taxable income for federal income tax
purposes upon the grant of an ISO.
Upon the exercise of an ISO, the optionee will not recognize taxable
income. If the optionee disposes of the shares acquired pursuant to the exercise
of an ISO more than two years after the date of grant and more than one year
after the transfer of the shares to him or her, the optionee will recognize
long-term capital gain or loss, and we will not be entitled to a deduction.
However, if the optionee disposes of such shares within the required holding
period, all or a portion of the gain will be treated as ordinary income, and we
will generally be entitled to deduct such amount.
In addition to the federal income tax consequences described above, an
optionee may be subject to the alternative minimum tax.
THE DIRECTOR PLAN
A stock option plan for non-employee directors (the "Director Plan") was
adopted by the Ameritrans Board of Directors and approved by a stockholder vote,
in order to link the personal interests of non-employee directors to our
long-term financial success and the growth of stockholder value. The Director
Plan is substantially identical to, and the successor to, a non-employee
director stock option plan adopted by the Board of Directors of Elk and approved
by its stockholders in September 1998 (the "Elk Director Plan"). Ameritrans and
Elk submitted an application for, and received on August 31, 1999, an exemptive
order relating to these plans from the SEC. The Director Plan was amended by the
Board of Directors on November 14, 2001 and approved by the shareholders at the
Annual Meeting on January 18, 2002. The amendment is still subject to the
approval of the Securities and Exchange Commission. The amendment (i) increases
the number of shares reserved under the plan from 75,000 to 125,000 and (ii)
authorizes the grant of an option to purchase up to 1,000 shares at the market
value at the date of grant to each eligible director who is re-elected to the
Board of Directors.
The Director Plan provides for the automatic grant of options to directors
who are not our employees, officers or interested persons (an "Eligible
Director"). By adopting the Director Plan, the Board believes that we will be
better able to attract, motivate and retain as directors people upon whose
judgment and special skills our success in large measure depends. The total
number of shares for which options may be granted from time to time under the
Director Plan is 75,000 shares, which will be increased to 125,000 upon SEC
approval of the amendment to the Director Plan. At present, there are 22,224
shares outstanding which have been granted to eligible directors.
The Director Plan provides that an Eligible Director serving on our Board
of Directors who has served as a director for at least one year will
automatically receive the grant of an option to purchase the number of shares of
Common Stock determined by dividing $50,000 by the fair market value of the
Common Stock on the date of the first anniversary such director became a
director.
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In addition, and as stated above, upon the approval of the SEC to the
amendment to the Director Plan, each eligible director to the Board of Directors
who is re-elected will be granted an option to purchase up to 1,000 shares at
the market value at the date of grant. The options are exercisable commencing
one year after the date of grant.
The Director Plan is administered by a committee of directors who are not
eligible to participate in the Directors Plan. Options become exercisable with
respect to such shares granted on the date on which the option was granted, so
long as the optionee remains an Eligible Director. No option may be exercised
more than five years after the date on which it is granted. The number of shares
available for options, the number of shares subject to outstanding options and
their exercise prices will be adjusted for changes in outstanding shares such as
stock splits and combinations of shares. Shares purchased upon exercise of
options, in whole or in part, must be paid for in cash or by means of
unrestricted shares of Common Stock or any combination thereof.
The following is a general summary of the federal income tax consequences
under current tax law of non-qualified stock options ("NQSOs"). It does not
purport to cover all of the special rules, including special rules relating to
persons subject to the reporting requirements of Section 16 under the 1934 Act
who do not hold the shares acquired upon the exercise of an option for at least
six months after the date of grant of the option and special rules relating to
the exercise of an option with previously-acquired shares, or the state or local
income or other tax consequences inherent in the ownership and exercise of stock
options and the ownership and disposition of the underlying shares.
Upon the exercise of a NQSO, the optionee will recognize ordinary income
in an amount equal to the excess, if any, of the fair market value of the shares
acquired on the date of exercise over the exercise price thereof, and Elk will
generally be entitled to a deduction for such amount at that time. If the
optionee later sells shares acquired pursuant to the exercise of a NQSO, he or
she will recognize long-term or short-term capital gain or loss, depending on
the period for which the shares were held. Long-term capital gain is generally
subject to more favorable tax treatment than ordinary income or short-term
capital gains.
If the option does not have a readily ascertainable fair market value, an
optionee will not recognize taxable income for federal income tax purposes upon
the grant of an NQSO.
Options granted under the Director Plan will not be transferable other
than by the laws of descent and during the optionee's life may be exercised only
by the optionee. All rights to exercise options will terminate after the
optionee ceases to be an Eligible Director. If the optionee dies before
expiration of the option, his legal successors may have the right to exercise
the option in whole or in part within one year of death.
The Director Plan may be terminated at any time by the Board of Directors,
and will terminate 10 years after the effective date of the Director Plan. The
Board of Directors may not materially increase the number of shares authorized
under the plan or materially increase the benefits accruing to participants
under the plan without the approval of our stockholders.
The exercise or conversion price of the options issued pursuant to the
Director Plan shall be not less than current market value at the date of
issuance, or if no such market value exists, the current net asset value of such
voting securities.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information as to (i) those persons
who, to our knowledge, owned 5% or more of our outstanding common stock as of
June 17, 2003, (ii) each of our directors and (iii) all of our officers and
directors as a group. Except as set forth below, the address of each person
listed below is the address of Ameritrans.
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Name Number of Percentage of Number of Percentage of
---- Shares of outstanding Shares of Outstanding
Common Stock Common Participating Participating
Beneficially Stock Beneficially Preferred Preferred Stock
Owned Owned Stock Owned Owned
----- ----- ----------- -----
*Gary C. Granoff 346,025(1) 16.62% 7,000 2.3%
*Ellen M. Walker 57,374(2) 2.79% ** **
*Lee A. Forlenza 53,418(3) 2.60% 1,000 **
Steven Etra 133,617(4) 6.50% ** **
55-25 58th Street
Maspeth, NY
Paul Creditor 7,556(5) ** ** **
747 Third Avenue, Suite 4C
New York, NY
Allen Kaplan 10,556(6) ** ** **
c/o Executive Charge, Inc.
1440 39th Street
Brooklyn, NY
John P. Laird 5,656(7) ** ** **
481 Canoe Hill Road
New Canaan, CT
Howard F. Sommer 5,556(8) ** ** **
c/o New York Community Investment
Co., LLC
120 Broadway
New York, NY
Dan M. Granoff 155,979(9) 7.66% ** **
Children's Hospital
Oakland Research Institute
747 52nd Street
Oakland, CA
Paul D. Granoff 143,179(10) 7.03% ** **
c/o Rush-Copley Medical Center
1900 Ogden Avenue
Aurora, IL
Infinity Capital Partners, L.P. 128,800 6.32% ** **
767 Third Avenue, 16th Floor
New York, New York 10017
*Margaret Chance 1,700 ** ** **
*Silvia M. Mullens 293 ** 293 **
Officers, Directors and 5% 1,049,709(11) 48.56% 7,000 2.3%
Stockholders as a group
(13 persons)
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* Gary C. Granoff, Ellen M. Walker, Lee A. Forlenza, Steven Etra, Margaret
Chance and Silvia Mullens are each "interested persons" with respect to
Ameritrans and Elk, as such term is defined in the 1940 Act.
** Less than 1%.
(1) Excludes 30,533 shares of Common Stock owned directly and indirectly by
Mr. Granoff's wife, as well as 1,000 shares of Participating Preferred
Stock and 1,000 Warrants directly owned by her as to which he disclaims
beneficial ownership. Also excludes 500 shares of Participating Preferred
Stock owned by Dapary Management Corp., a corporation
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controlled by Mr. Granoff, and 1,000 shares of Participating Preferred
Stock owned by J&H Associates Ltd. Pts., a partnership whose general
partner is GCG Associates Inc., a corporation controlled by Mr. Granoff.
Includes 30,000 options for the purchase of 30,000 shares of Common Stock,
which options are exercisable immediately and expire five years from the
date of grant, and 1,800 Warrants, which are exercisable within 60 days
into 1,800 shares of Common Stock and which expire April 1, 2007. Also
includes 16,900 shares owned by The Granoff Family Foundation, a
charitable foundation for which Mr. Granoff and his mother and brother are
trustees. Also includes 261 shares held by GCG Associates Inc., a
corporation controlled by Mr. Granoff. Also includes 77,584 shares of
common stock, as well as 500 shares of Participating Preferred Stock and
500 Warrants owned by DAPARY Management Corp., a corporation controlled by
Mr. Granoff. Also includes 12,000 shares of Common Stock, as well as 1,000
shares of Participating Preferred Stock and 1,000 Warrants owned by J & H
Associates Ltd. Pts., a partnership whose general partner is GCG
Associates Inc., a corporation controlled by Mr. Granoff.
(2) Includes (i) 200 shares held by Ms. Walker as custodian for her son; (ii)
22,800 shares held by various trusts of which Ms. Walker is a trustee and
as to which she disclaims beneficial ownership (Mr. Granoff retains a
reversionary interest in 21,000 of such shares), and (iii) 20,000 shares
issuable upon the exercise of ten-year options issued under the 1999
Employee Plan. See "Stock Option Plans."
(3) Includes 700 Warrants, and 17,500 shares of Common Stock issuable upon the
exercise of ten-year options issued to under the 1999 Employee Plan. See
"Stock Option Plans."
(4) Includes (i) 27,000 shares held by Mr. Etra's wife; (ii) 1,500 shares held
by Mr. Etra's son; (iii) 10,000 shares held by SRK Associates LLC, a
limited liability company controlled by Mr. Etra, (iv) 10,000 shares held
by Lance's Property Development Corp. Pension Plan, of which Mr. Etra is a
trustee and (v) 17,500 shares issuable upon the exercise of ten-year
options issued under the 1999 Employee Plan. See "Stock Option Plans."
(5) Includes 5,556 shares issuable upon exercise of ten year options issued
under the Director Plan. See "Stock Options Plans."
(6) Includes 5,556 shares issuable upon exercise of ten year options issued
under the Director Plan. See "Stock Options Plans."
(7) Includes 5,556 shares issuable upon exercise of ten year options issued
under the Director Plan. See "Stock Option Plans."
(8) Includes 5,556 shares issuable upon exercise of ten-year options issued
under the Director Plan. See "Stock Option Plans."
(9) Includes (i) 10,900 shares owned by a charitable foundation, of which
Jeannette Granoff, Gary C. Granoff and Dr. Dan M. Granoff are the
trustees, and (ii) 2,800 shares held in an IRA Rollover Account for the
benefit of Dr. Granoff.
(10) Includes 40,049 shares held by Dr. Paul Granoff directly, 77,630 held by
Granoff Family Partners Ltd., of which Dr. Granoff is a general partner,
and 25,500 shares held by the Granoff Pediatric Associates Profit Sharing
Plan. Excludes 14,127 shares held by Dr. Granoff's wife, of which shares
he disclaims beneficial ownership.
(11) Includes 4,000 shares issuable upon the exercise of 4,000 Warrants,
100,000 shares issuable upon the exercise of 30,000 five-year and 70,000
ten-year options issued under the 1999 Employee Plan, and 22,224 shares
issuable upon the exercise of ten-year options issued under the Director
Plan. See "Stock Option Plans."
Except pursuant to applicable community property laws or as described
above, each person listed in the table above has sole voting and investment
power, and is both the owner of record and the beneficial owner of his or her
respective shares.
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Except as otherwise indicated above, the persons listed in the above table
have voting and investment power with respect to their respective shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Elk pays legal fees, on a fixed or hourly basis, for loan closing services
relating to loans other than New York taxi and radio car loan closings to
Granoff, Walker & Forlenza, P.C. ("Granoff, Walker") whose stockholders are
officers and directors of Elk and Ameritrans. Such services related to New York
taxi and radio car loans are provided by the officers and employees of Elk. Elk
paid Granoff, Walker $34,221 in fees during the nine months ended March 31,
2003. The Company paid $63,733, $28,865, and $63,688 for the years ended June
30, 2002, 2001, and 2000, respectively. Elk generally charges its borrowers loan
origination fees to generate income to offset the legal fees paid by Elk for
loan closing services.
We also rent office space from Granoff, Walker and share certain office
expenses with that firm. For the nine months ended March 31, 2003, we paid
$45,355 in rent, $47,390 in shared overhead expense, and $16,683 of other
reimbursable shared overhead expense. Rent expense amounted to $44,965 for the
year ended June 30, 2002 and $39,600 for each of the years ended June 30, 2001,
and 2000, respectively. Shared overhead costs and reimbursable shared overhead
expenses for the years ended June 30, 2002, 2001, and 2000 amounted to $98,925,
$91,301, and $88,186, respectively.
During the fiscal year ended June 30, 1998, Granoff, Walker exercised an
option in its lease, at our request, and rented an additional 1,800 square feet
of office space contiguous with our offices at a below market rent (the
"Additional Space"). Until we require the Additional Space, the law firm sublets
the Additional Space to outside tenants under short-term arrangements. In the
event all or a portion of the Additional Space is vacant, Elk's Board of
Directors has agreed to reimburse the law firm for the additional rent due. The
estimated maximum amount of rent for which we would be responsible is $58,000
per year, less any sublet rental income received from the outside tenants.
During the year ended 2002, Elk paid the law firm approximately $7,000 on
account of this agreement. In August, 2001, Ameritrans' Board of Directors
approved the execution of a formal sublease with the law firm on financial terms
and conditions consistent with the prior arrangement for the period July 1, 2001
through April 30, 2004.
CONFLICTS OF INTEREST POLICIES
The Boards of Directors of Ameritrans and Elk have adopted policies
governing potential conflicts of interest between the companies and their
directors and officers. Together, these policies comprise our "Codes of Ethics"
as required under the 1940 Act.
These policies generally provide that no officer, director or employee of
the respective company will make any loan which might be deemed to be
appropriate for that company, unless and until such transaction is first
approved by a majority of the directors of that company who are not "interested
persons" of that company within the meaning of the 1940 Act and who have no
financial or other material interest in the transaction. A loan would not be
deemed to be appropriate for Elk if in any manner such loan (or investment)
would in any way violate SBA Regulations in effect at the time of making such
loan or investment. In reviewing any such transaction, the directors will
examine, among other factors, whether the transaction would deprive the company
of an opportunity or whether it would otherwise conflict with our best interests
and those of our stockholders. A complete record of any such review and the
results of the review will be maintained by the respective company as part of
its permanent records.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Ameritrans Certificate of Incorporation limits the liability of our
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the Delaware General
Corporation Law. This limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or recision.
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The Ameritrans by-laws provide that Ameritrans shall indemnify its
officers and directors to the fullest extent permitted by Delaware law,
including in circumstances in which indemnification is otherwise discretionary
under Delaware law. We have entered into indemnification agreements with our
officers and directors containing provisions that may require Ameritrans, among
other things, to indemnify its officers and directors against certain
liabilities that may arise by reason of their status as directors or officers
(other than liabilities arising from willful misconduct of a culpable nature)
and to advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified.
Ameritrans has directors' and officers' liability insurance. This policy
was previously held by Elk for the benefit of its officers and directors and was
assumed by Ameritrans upon the completion of the Share Exchange.
REGULATION
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the federal income tax
principles applicable to Ameritrans, based on the currently existing provisions
of the Internal Revenue Code and the regulations thereunder. This summary does
not purport to be a complete description of the tax considerations applicable to
Ameritrans or to the holders of its Common Stock, Participating Preferred Stock
and Warrants. These principles, in general, also apply to Elk, but the sole
direct stockholder of Elk is Ameritrans.
Ameritrans has elected to be treated as a "regulated investment company"
(a "RIC") under Section 851 of the Internal Revenue Code, and Elk has elected to
be treated as an RIC since 1984. A regulated investment company may deduct, for
federal income tax purposes, most dividends paid to stockholders, thereby
avoiding federal income taxation at the corporate level on stockholder
dividends. In addition, because Elk currently qualifies for treatment as an RIC,
Ameritrans anticipates that the dividends it receives from Elk will not be
subject to corporate taxation at the level of Elk.
TAXATION OF REGULATED INVESTMENT COMPANIES
In order to qualify as an RIC for a given fiscal year, a company must
generally meet each of the following conditions for that fiscal year:
a) The company must be registered as an investment company under the
1940 Act at all times during the year.
b) At least 90% of the company's gross income for the year must be
derived from interest, gains on the sale or other disposition of stock or other
securities, dividends and payment with respect to securities loans.
c) At the close of each quarter, at least 50% of the value of the
company's total assets must be represented by cash, cash items (including
receivables), securities of other RICs and securities of other issuers, except
that the investment in a single issuer of securities may not exceed 5% of the
value of the RIC's assets, or 10% of the outstanding voting securities of the
issuer.
d) At the close of each quarter, and with the exception of
government securities or securities of other RICs, no more than 25% of the value
of an RIC's assets may be made up of investments in the securities of a single
issuer or in the securities of two or more issuers controlled by the RIC and
engaged in the same or a related trade or business. However, if a non-RIC entity
controlled by the RIC subsequently sustains internally generated growth (as
opposed to growth via acquisitions), the diversification requirement will not be
violated even if the non-RIC subsidiary represents in excess of 25% of the RIC's
assets.
e) The company must distribute as dividends at least 90% of its
investment company taxable income (as defined in Section 852 of the Internal
Revenue Code), as well as 90% of the excess of its tax-exempt income over
certain disallowed tax-exempt interest deductions. This treatment substantially
eliminates the "double taxation" (i.e., taxation at both the corporate and
stockholder levels) that generally results from the use of corporate investment
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vehicles. An RIC is, however, generally subject to federal income tax at regular
corporate rates on undistributed investment company taxable income.
In order to avoid the imposition of a non-deductible 4% excise tax on its
undistributed income, an RIC is required, under Section 4982 of the Internal
Revenue Code, to distribute within each calendar year at least 98% of its
ordinary income for such calendar year and 98% of its capital gain net income
(reduced by the RIC's net ordinary loss for the calendar year, but not below its
net capital gain) for the one-year period ending on October 31 of such calendar
year, plus any remaining undistributed income and gain from prior years.
The tax benefits available to a qualified RIC are prospective, commencing
with the fiscal year in which all the conditions listed above are met, and would
not permit Ameritrans to avoid income tax at the corporate level on income
earned during prior taxable years. If Ameritrans fails to qualify as an RIC for
a given fiscal year, Ameritrans will not be entitled to a federal income tax
deduction for dividends distributed, and amounts distributed as stockholder
dividends by Ameritrans will therefore be subject to federal income tax at both
the corporate level and the individual level.
Dividends distributed by Elk to Ameritrans will constitute ordinary income
to Ameritrans to the extent derived from non-capital gain income of Elk, and
will ordinarily constitute capital gain income to Ameritrans to the extent
derived from long-term capital gains of Elk. However, since Ameritrans is also
an RIC, Ameritrans will, in general, not be subject to a corporate level tax on
its income to the extent that it makes distributions to its stockholders. If Elk
does not qualify as an RIC for any reason in any fiscal year, it will not be
entitled to a federal income tax deduction for dividends distributed, and will
instead be liable to pay corporate level tax on its earnings. Further, if Elk
does not qualify as an RIC, such failure will cause Ameritrans to fail to
qualify for RIC status as well, as long as Elk stock held by Ameritrans
represents more than 25% of Ameritrans' assets. In such a case, Ameritrans may
be taxed on the dividends received from Elk, subject to the deduction for
corporate dividends received. The deduction for dividends received by
corporations depend on the percentage of recipients ownership of the corporation
paying the dividend. Under Section 243 of the Internal Revenue Code a 70%
deduction is allowed if the receiving corporation owns less than 20% of the
stock, by vote and value, of the paying corporation, 80% if at least 20% and
less than 80% is owned, and 100% if the ownership percentage is over 80% and the
dividend is a "Qualifying Dividend" paid between member of the same Affiliated
Group. Thus, if Elk fails to qualify as an RIC for any reason, its earnings may
be taxed at three levels, to Elk, in part to Ameritrans, and finally, when they
are distributed by Ameritrans, to our stockholders.
As long as Ameritrans qualifies as an RIC, dividends distributed by
Ameritrans to its stockholders out of current or accumulated earnings and
profits constitute ordinary income to such stockholders to the extent derived
from ordinary income and short-term capital gains of Ameritrans (such as
interest from loans by Ameritrans or dividends received from Elk). Any long-term
capital gain dividends distributed by Ameritrans would constitute capital gain
income to Ameritrans stockholders. To the extent Ameritrans makes distributions
in excess of current and accumulated earnings and profits, these distributions
are treated first as a tax-free return of capital to the stockholder, reducing
the tax basis of the stockholder's stock by the amount of such distribution, but
not below zero, with distributions in excess of the stockholder's basis taxable
as capital gains if the stock is held as a capital asset.
TAXATION OF SBICS
As a result of Elk's status as a licensed SBIC under the 1958 Act, Elk and
its stockholders qualify for the following tax benefits:
(i) Under Section 243 of the Internal Revenue Code, Elk may deduct 100% of
the dividends received by it from domestic corporations in which it has made
equity investments, regardless of whether such corporations are subsidiaries of
Elk (in contrast to the generally applicable 70% deduction under the Code).
Because Elk generally makes long-term loans rather than equity investments, this
potential benefit is not likely to be of practical significance to Elk or its
stockholder.
(ii) Under Section 1243 of the Internal Revenue Code, losses sustained on
Elk's investments in the convertible debentures, or stock derived from
convertible debentures, of Small Business Concerns are treated as ordinary
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losses rather than capital losses to Elk. Because Elk does not presently intend
to purchase convertible debentures, however, this potential benefit is not
likely to be of practical significance to Elk or its stockholder.
STATE AND OTHER TAXES
The foregoing discussion relates only to federal income tax matters.
Ameritrans and Elk are also subject to state and local taxation. The state,
local and foreign tax treatment may not conform to the federal tax treatment
discussed above. Stockholders should consult with their own tax advisors with
respect to the state and local tax considerations pertaining to Ameritrans and
Elk.
THE INVESTMENT COMPANY ACT OF 1940
Ameritrans and Elk are closed-end, non-diversified management investment
companies that have elected to be treated as BDCs and, as such, are subject to
regulation under the 1940 Act. The 1940 Act contains prohibitions and
restrictions relating to transactions between investment companies and their
affiliates, principal underwriters and affiliates of those affiliates or
underwriters. In addition, the 1940 Act provides that a BDC may not change the
nature of its business so as to cease to be, or to withdraw its election as, a
BDC unless so authorized by the vote of a "majority of its outstanding voting
securities," as defined under the 1940 Act.
BDCs are permitted, under specified conditions, to issue multiple classes
of indebtedness and one class of stock (collectively, "senior securities," as
defined under the 1940 Act) senior to the shares of Common Stock offered hereby
if their asset coverage of such indebtedness and all senior securities is at
least 200% immediately after each such issuance. Subordinated SBA debentures,
preferred stock guaranteed by or issued to the SBA by Elk, and Elk bank
borrowings are not subject to this asset coverage test. In addition, while
senior securities are outstanding, provision must be made to prohibit the
declaration of any dividend or other distribution to stockholders (except stock
dividends) or the repurchase of such securities or shares unless we meet the
applicable asset coverage ratios at the time of the declaration of the dividend
or distribution or repurchase. The Exemptive Order issued by the SEC grants
certain relief from the asset coverage ratios applicable to BDCs.
Under the 1940 Act, a BDC may not acquire any asset other than Qualifying
Assets unless, at the time the acquisition is made, certain Qualifying Assets
represent at least 70% of the value of the company's total assets. The principal
categories of Qualifying Assets relevant to our proposed business are the
following:
(1) Securities purchased in transactions not involving a public offering
from the issuer of such securities, which issuer is an eligible portfolio
company. An "eligible portfolio company" is defined in the 1940 Act as any
issuer which:
(a) is organized under the laws of, and has its principal place of
business in, the United States;
(b) is not an investment company other than an SBIC wholly-owned by
the BDC; and
(c) satisfies one or more of the following requirements:
(i) the issuer does not have a class of securities with
respect to which a broker or dealer may extend margin credit; or
(ii) the issuer is controlled by a BDC and the BDC has an
affiliated person serving as a director of issuer;
(iii) the issuer has total assets of not more than $4,000,000
and capital and surplus (stockholders' equity less retained earnings) of not
less than $2,000,000, or such other amounts as the SEC may establish by rule or
regulation; or
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(iv) the issuer meets such requirements as the SEC may
establish from time to time by rule or regulation.
(2) Securities for which there is no public market and which are purchased
in transactions not involving a public offering from the issuer of such
securities where the issuer is an eligible portfolio company which is controlled
by the BDC.
(3) Securities received in exchange for or distributed on or with respect
to securities described in (1) or (2) above, or pursuant to the exercise of
options, warrants or rights relating to such securities.
(4) Cash, cash items, government securities, or high quality debt
securities maturing in one year or less from the time of investment.
In addition, a BDC must have been organized (and have its principal place
of business) in the United States for the purpose of making investments in the
types of securities described in (1) or (2) above. In order to count securities
as Qualifying Assets for the purpose of the 70% test, the BDC must either
control the issuer of the securities or must make available to the issuer of the
securities significant managerial assistance; except that, where the BDC
purchases such securities in conjunction with one or more other persons acting
together, one of the other persons in the group may make available the required
managerial assistance. We believe that the common stock of Elk held by
Ameritrans are Qualifying Assets.
THE SMALL BUSINESS INVESTMENT ACT OF 1958
Elk was formerly an SSBIC and, as explained in further detail below, was
converted to an SBIC in February 1997 in accordance with an agreement with the
SBA. The 1958 Act authorizes the organization of SBICs as vehicles for providing
equity capital, long term financing and management assistance to Small Business
Concerns. A Small Business Concern, as defined in the 1958 Act and the SBA
Regulations, is a business that is independently owned and operated and which is
not dominant in its field of operation. In addition, at the end of each fiscal
year, at least 20% of the total amount of loans made since April 25, 1994 by
each SBIC must be made to a subclass of Small Business Concerns that (i) have a
net worth, together with any affiliates, of $6 million or less and average
annual net income after U.S. federal income taxes for the preceding two (2)
years of $2 million or less (average annual net income is computed without the
benefit of any carryover loss), or (ii) satisfy alternative criteria under SBA
Regulations that focus on the industry in which the business is engaged and the
number of persons employed by the business or its gross revenues. SBA
Regulations also prohibit an SBIC from providing funds to a Small Business
Concern for certain purposes, such as relending and reinvestment.
The 1958 Act authorized the organization of SSBICs to provide assistance
to Disadvantaged Concerns, i.e., businesses that are at least 50% owned and
managed by persons whose participation in the free enterprise system is hampered
because of social or economic disadvantages. Certain 1996 amendment to the 1958
Act provided, among other things, that no further subsidized funding would be
made available to SSBICs. Thereafter, pursuant to an agreement with the SBA, Elk
was converted to an SBIC, subject to certain conditions imposed by the SBA.
Under this agreement, Elk may now lend to persons who are not Disadvantaged
Concerns. As of June 30, 2002, more than 90% of Elk's portfolio of loans and
investments were to Disadvantaged Concerns.
Under current SBA Regulations and subject to local usury laws, the maximum
rate of interest that Elk may charge may not exceed the higher of (i) 19% or
(ii) a rate calculated with reference to Elk's weighted average cost of
qualified borrowings, as determined under SBA Regulations or the SBA's current
debenture interest rate. The current maximum rate of interest permitted on loans
originated by Elk is 19%. At March 31, 2003, Elk's outstanding loans had a
weighted average rate of interest of 11%. SBA Regulations also require that each
loan originated by SBICs have a term of between five years and 20 years.
The SBA restricts the ability of SBICs to repurchase their capital stock,
to retire their subordinated SBA debentures and to lend money to their officers,
directors and employees or invest in affiliates thereof. The SBA also prohibits,
without prior SBA approval, a "change of control" or transfers which would
result in any person (or group
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of persons acting in concert) owning 10% or more of any class of capital stock
of an SBIC. A "change of control" is any event which would result in the
transfer of the power, direct or indirect, to direct the management and policies
of an SBIC, whether through ownership, contractual arrangements or otherwise.
Under SBA Regulations, without prior SBA approval, loans by licensees with
outstanding SBA leverage to any single Small Business Concern may not exceed 20%
of an SBIC's Leverageable Capital. Under the terms of the SBA Agreement,
however, Elk is authorized to make loans to Disadvantaged Concerns in amounts
not exceeding 30% of its respective Leverageable Capital.
SBICs must invest funds that are not being used to make loans in
investments permitted under SBA Regulations. These permitted investments include
direct obligations of, or obligations guaranteed as to principal and interest
by, the government of the United States with a term of 15 months or less and
deposits maturing in one year or less issued by an institution insured by the
FDIC. The percentage of an SBIC's assets so invested will depend on, among other
things, loan demand, timing of equity infusions and SBA funding and availability
of funds under credit facilities.
SBICs may purchase voting securities of Small Business Concerns in
accordance with SBA Regulations. SBA Regulations prohibit SBICs from controlling
a Small Business Concern except where necessary to protect an investment. SBA
Regulations presume control when SBICs purchase (i) 50% or more of the voting
securities of a Small Business Concern if the Small Business Concern has less
than 50 stockholders or (ii) more than 20% (and in certain situations up to 25%)
of the voting securities of a Small Business Concern if the Small Business
Concern has 50 or more stockholders.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Ameritrans consists of 5,000,000 shares,
$.0001 par value, of Common Stock, of which 2,045,600 shares are issued and
2,035,600 are outstanding, and 1,000,000 shares of "blank check" preferred
stock, of which 500,000 shares were designated as the Participating Preferred
Stock and 500,000 remain as "blank check" preferred stock which have not been
issued or are outstanding. As of July 9, 2003, there were 197 holders of record
of the Ameritrans Common Stock, exclusive of shareholders holding stock in
street name, three holders of record of the Participating Preferred Stock and
three holders of record of the Warrants.
COMMON STOCK
The holders of Common Stock are entitled to one (1) vote per share on all
matters submitted to a vote of stockholders. Holders of Common Stock have
neither cumulative voting rights (which means that the holders of a majority of
the outstanding shares of Common Stock may elect all of our directors) nor any
preemptive rights. Holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor.
In order to qualify as a "regulated investment company" under the Internal
Revenue Code, we are required to distribute as dividends to our stockholders,
for each fiscal year, at least 90% of our taxable income and 90% of the excess
of our tax-exempt income over certain disallowed deductions. In addition, in
order to avoid a non-deductible 4% excise tax on any undistributed income, we
are required to distribute as dividends, within each calendar year, at least 98%
of our ordinary income for such calendar year and 98% of our capital gain net
income for the one-year period ending on October 31 of such calendar year. See
"Federal Income Tax Considerations." In the event of a liquidation, dissolution
or winding up of Ameritrans, holders of Common Stock will be entitled to receive
a ratable portion of the assets of Ameritrans remaining after provision for
payment of creditors. All of the outstanding shares of Common Stock are fully
paid and non-assessable.
PREFERRED STOCK
Subject to the asset coverage requirements of the 1940 Act, Preferred
Stock may be issued from time to time by the Board of Directors as shares of one
or more series. Subject to the provisions of the Certificate of Incorporation
and limitations prescribed by law, the Board of Directors is expressly
authorized to adopt resolutions to issue the shares,
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to fix the number of shares and to change the number of shares constituting any
series, and to provide for the voting powers, designations, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any class or series of the
Preferred Stock, in each case without any further action or vote by the
stockholders.
The Board of Directors could issue series of the undesignated Preferred
Stock to make more difficult or to discourage an outsider's attempt to obtain
control of Ameritrans by means of a tender offer, proxy contest, merger or
otherwise, and thereby to protect the continuity of our management. The issuance
of shares of the Preferred Stock by the Board of Directors could have a negative
effect on the rights of the holders of Common Stock. For example, holders of
Preferred Stock may be entitled to receive dividends and distributions on
liquidation before the holders of the Common Stock, and the Preferred Stock
could have full or limited voting rights. As a result, the issuance of shares of
Preferred Stock may discourage bids for the Common Stock or may cause the market
price of the Common Stock to decline.
DESCRIPTION OF PARTICIPATING PREFERRED STOCK
The following is a brief description of the terms of the Participating
Preferred Stock. This description does not purport to be complete and is
qualified by reference to the Certificate of Designations of the Participating
Preferred Stock, the form of which is filed as an exhibit to this Registration
Statement.
GENERAL
Under the Certificate of Designations, Ameritrans initially will be
authorized to issue up to 500,000 shares of Participating Preferred Stock. No
fractional shares of Participating Preferred Stock will be issued. The Board of
Directors reserves the right to issue additional shares of Participating
Preferred Stock, from time to time, subject to the restrictions set forth in the
Certificate of Designations and by law. The shares of Participating Preferred
Stock will, upon issuance, be fully paid and nonassessable, and will have no
preemptive, exchange, or conversion rights. Any shares of Participating
Preferred Stock repurchased or redeemed by Ameritrans will be retired and will
revert to authorized but unissued Preferred Stock undesignated as to series. The
Board of Directors may, by resolution, designate any authorized but undesignated
Preferred Stock from time to time by setting the preferences, rights, voting
powers, restrictions, limitations, or terms of redemption. Ameritrans will not
issue any class or series of stock senior to the shares of Participating
Preferred Stock with respect to the payment of dividends or in distribution of
assets upon liquidation, dissolution or winding up of the Company without the
prior consent of at least a majority of the outstanding shares of Participating
Preferred Stock voting separately as a class.
Payments to the holders of Participating Preferred Stock of dividends or
upon redemption or in liquidation will be subject to the prior payments of
interest and repayment of principal then due on any other indebtedness of the
Company.
DIVIDENDS
Holders of shares of Participating Preferred Stock will be entitled to
receive, when and as declared by the Board of Directors of Ameritrans out of
funds legally available therefor, cumulative cash dividends at the annual rate
of 9 3/8% per share of the face value of $12.00. The dividends will be payable
four times a year to the holders of record of the Participating Preferred Stock
on March 31, June 30, September 30 and December 31 in each year (each a "Record
Date"). The dividends are payable within 20 days after each Record Date (each a
"Dividend Payment Date") with respect to the applicable Dividend Period (as
defined below) (or portion thereof). Dividends on shares of Cumulative Preferred
Stock shall accumulate from the date on which such shares of Cumulative
Preferred Stock are originally issued (the "Date of Original Issue"). Each
period beginning on and including a Record Date and ending on but excluding the
next succeeding Record Date is referred herein as a "Dividend Period."
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No dividends will be declared or paid or set apart for payment on shares
of Participating Preferred Stock for any Dividend Period or part thereof unless
full cumulative dividends have been or contemporaneously are declared and paid
on all outstanding shares of Participating Preferred Stock through the most
recent Dividend Payment Dates thereof. If full cumulative dividends are not
declared and paid on the Participating Preferred Stock, all dividends declared
on the shares of Participating Preferred Stock will be paid pro rata to the
holders of the outstanding shares of Participating Preferred Stock. Holders of
shares of Participating Preferred Stock will not be entitled to any dividends,
whether payable in cash, property, or stock, in excess of full cumulative
dividends. No interest, or sum of money in lieu of interest, will be payable in
respect of any dividend payment that may be in arrears.
For so long as any shares of Participating Preferred Stock are
outstanding, Ameritrans will not declare, pay, or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or options, warrants, or rights to subscribe for or purchase share
of, Common Stock or other stock, if any, ranking junior to the Participating
Preferred Stock as to dividends or upon liquidation) in respect of the Common
Stock or any other stock of Ameritrans ranking junior to or on a parity with the
Participating Preferred Stock as to dividends or upon liquidation, or call for
redemption, redeem, purchase, or otherwise acquire for consideration any shares
of its Common Stock or any other junior stock (except by conversion into or
exchange for stock of Ameritrans ranking junior to or on a parity with the
Participating Preferred Stock as to dividends and upon liquidation), unless, in
each case, (i) Ameritrans will maintain an asset coverage of 200%, and (ii) full
cumulative dividends on shares of Participating Preferred Stock due on or prior
to the date of any such action have been declared and paid.
PARTICIPATION IN PROCEEDS FROM THE SALE OF THE COMPANY
The holders of the Participating Preferred Stock will be entitled to a
portion of the proceeds from the sale of the Company pursuant to any
consolidation or merger of the Company which results in one hundred percent
(100%) of the capital stock of the surviving or resulting entity being held by
persons and/or entities other than the persons and/or entities that held the
capital stock of the Company immediately prior to such consolidation or merger.
In such consolidation or merger, in preference to any payment made to holders of
the common stock or any other stock ranking junior to the Participating
Preferred Stock, the holders of Participating Preferred Stock shall be entitled
to receive a portion of the consideration received upon such merger or
consolidation equal to the $12.00 face value plus any accrued and unpaid
dividends and any Redemption Premium (as defined below) per share of
Participating Preferred Stock. If Ameritrans is sold for an amount in excess of
120% of the per common share net asset value as determined in the good faith
judgement of the board of directors, subject to applicable law at the time of
the sale (the "Excess Value"), then the value received by the holders of the
Participating Preferred Stock will be increased by adding, pro rata, to the
amount such holders are entitled to receive pursuant to the preceding sentence
that percentage of the Excess Value that is equal to the percentage of the
Company's total capital (net assets) that is represented by the Participating
Preferred Stock (based on the aggregate face value of the then outstanding
shares of Participating Preferred Stock).
OPTIONAL REDEMPTION
The shares of Participating Preferred Stock, subject to certain
limitations, shall be redeemable in whole or in part from time to time solely at
the option of Ameritrans during the first year from the date of the April 2002
Unit Offering at a premium (the "Redemption Premium") of 10% above the face
value of $12.00 per share, during the second year at a Redemption Premium of 8%
above the face value of $12.00 per share, during the third year at a Redemption
Premium of 6% above the face value of $12.00 per share, during the fourth year
at a Redemption Premium of 4% above the face value of $12.00 per share, and
during the fifth year at a Redemption Premium of 2% above the face value of
$12.00 per share. Thereafter, the Participating Preferred Stock shall be
redeemable at the option of Ameritrans in whole or in part from time to time at
the face value of $12.00 per share.
Redemption Procedures. A Notice of Redemption will be given to the holders
of record of Participating Preferred Stock selected for redemption not less than
30 or more than 60 days prior to the date fixed for the redemption. Each Notice
of Redemption will state (i) the redemption date, (ii) the number of shares of
Participating Preferred Stock to be redeemed, (iii) the CUSIP number(s) of such
shares, (iv) the redemption price, (v) the place or places where such shares are
to be redeemed, (vi) that dividends on the shares to be redeemed will cease to
accrue on such redemption date, and (vii) the provisions of the Certificate of
Designations under which the redemption is being made, including the
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amount of premium in excess of the $12.00 face value of the holders are entitled
to receive, if any. No defect in the Notice of Redemption or in the mailing
thereof will affect the validity of the redemption proceedings, except as
required by applicable law.
LIQUIDATION RIGHTS
Upon a liquidation, dissolution, or winding up of the affairs of the
Company (whether voluntary or involuntary), holders of shares of Participating
Preferred Stock then outstanding will be entitled to receive out of the assets
of Ameritrans available for distribution to stockholders, after satisfying
claims of creditors but before any distribution or payment of assets is made to
holders of the Common Stock or any other class of stock of the Company ranking
junior to the Participating Preferred Stock as to liquidation payments, a
liquidation distribution in the amount of $12.00 per share, plus an amount equal
to all accrued and unpaid dividends thereon up to and including the date fixed
for such distribution or payment (whether or not earned or declared by the
Company, but excluding interest thereon) plus the Redemption Premium, if any
(collectively the "Liquidation Preference"), and such holders will be entitled
to no further right or claim to any of the remaining assets of the Company. If,
upon any liquidation, dissolution, or winding up of the affairs of the Company
whether voluntary or involuntary, the assets of the Company available for
distribution among the holders of all outstanding shares of Participating
Preferred Stock and any other outstanding capital stock of the Company ranking
on a parity with the Participating Preferred Stock as to payment upon
liquidation will be insufficient to permit the payment in full to such holders
of Participating Preferred Stock of the Liquidation Preference and the amounts
due upon liquidation with respect to such other capital stock of the Company
ranking on parity with the Participating Preferred Stock as to payment upon
liquidation, then such available assets will be distributed among the holders of
Participating Preferred Stock and such other capital stock ratably in proportion
to the respective preferential amounts to which they are entitled. Unless and
until the Liquidation Preference has been paid in full to the holders of
Participating Preferred Stock, no dividends or other distributions will be made
to holders of the Common Stock or any other stock of the Company ranking junior
to the Participating Preferred Stock as to liquidation.
VOTING RIGHTS
Except as otherwise stated in the Certificate of Designations and as
otherwise required by applicable law, holders of shares of Participating
Preferred Stock will be entitled to one vote per share on each matter submitted
to a vote of stockholders and will vote together as a single class with holders
of shares of Common Stock and of any other Preferred Stock entitled to vote with
the Common Stock of the Company then outstanding. The holders of shares of
Participating Preferred Stock shall not be entitled to vote as a class in any
matter except as otherwise provided for in the Certificate of Designations, as
required by the 1940 Act or otherwise required by law.
In connection with the election of the Company's directors, holders of
shares of Participating Preferred Stock and any other Preferred Stock entitled
to vote for the election of directors, voting together as a separate class, will
be entitled at all times to elect two of Ameritrans' directors, and the
remaining directors will be elected by holders of shares of Common Stock and
holders of shares of Participating Preferred Stock and any other Preferred Stock
entitled to vote for the election of directors, voting together as a single
class. At the Company's most recent annual meeting of shareholders, held
February 25, 2003, John Laird and Howard Sommer, both of whom are disinterested
directors, were elected by the holders of the Participating Preferred Stock to
serve as the director representatives for the holders of the Participating
Preferred Stock for a term of one year and until their successors are chosen and
qualified.
In addition, if at any time dividends on outstanding shares of
Participating Preferred Stock and/or any other Preferred Stock are unpaid in an
amount equal to at least two full years' dividends thereon, or if at any time
the holders of any shares of Preferred Stock are entitled, together with the
holders of shares of Participating Preferred Stock, to elect a majority of the
directors of the Company under the 1940 Act, then the number of directors
constituting the Board of Directors automatically will be increased by the
smallest number that, when added to the two directors elected exclusively by the
holders of shares of Participating Preferred Stock and any other Preferred Stock
as described above, would constitute a majority of the Board of Directors as so
increased by such smallest number. Such additional directors will be elected at
a special meeting of stockholders which will be called and held as soon as
practicable after the automatic increase in the number of directors, and at all
subsequent meetings at which directors are to be elected, the holders of shares
of Participating Preferred Stock and any other Preferred Stock, voting together
as a separate class, will
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be entitled to elect the smallest number of additional directors that, together
with the two directors which such holders in any event will be entitled to
elect, constitutes a majority of the total number of directors of the Company as
so increased. The terms of office of the persons who are directors at the time
of that election will continue until their successors are duly elected. If
Ameritrans thereafter pays, or declares and sets apart for payment in full, all
dividends payable on all outstanding shares of Participating Preferred Stock and
any other Preferred Stock for all past dividend periods, or if the holders of
the Participating Preferred Stock and the Preferred Stock entitled to vote for
the election of such additional directors are no longer entitled to vote to
elect a majority of the directors under the 1940 Act, the additional voting
rights of the holders of shares of Participating Preferred Stock and any other
Preferred Stock as described above will cease, and the terms of office of all of
the additional directors elected by the holders of shares of Participating
Preferred Stock and any other Preferred Stock (but not of the directors with
respect to whose election the holders of shares of Common Stock were entitled to
vote or the two directors the holders of shares of Participating Preferred Stock
and any other Preferred Stock have the right to elect in any event) will
terminate immediately and automatically and the number of directors shall
automatically be reduced to the number that existed prior to the automatic
increase described above.
So long as the shares of Participating Preferred Stock are outstanding,
the Company will not, without the affirmative vote of the holders of a majority
of the shares of Participating Preferred Stock outstanding at the time, and all
other series of Preferred Stock entitled to vote thereon, voting together as one
class, amend, alter, or repeal the provisions of the Certificate of
Incorporation, (directly or indirectly or by operation of law (including by
merger, consolidation or otherwise)), so as to adversely affect any of the
rights set forth in the Certificate of Incorporation or the Certificate of
Designations of holders of the shares of Participating Preferred Stock. So long
as the shares of Participating Preferred Stock are outstanding, the Company will
not without the affirmative vote of the holders of a majority of the shares of
Participating Preferred Stock voting separately as a single class, issue shares
of any class or series of stock ranking senior to the Participating Preferred
Stock with respect to the payment of dividends or in distribution of assets upon
liquidation, dissolution or winding up of the Company. The affirmative vote of a
majority of the votes entitled to be cast by holders of outstanding shares of
the shares of the Participating Preferred Stock and any other Preferred Stock,
voting together as a separate class, will be required to approve any plan of
reorganization (as defined in the 1940 Act) adversely affecting such shares or
any action requiring a vote of security holders under Section 13(a) of the 1940
Act, including, among other things, any action to change the subclassification
from a closed-end investment company to an open-end investment company and
changes in the Company's investment objectives or changes in the investment
company restrictions described as fundamental policies under "Investment
Objectives and Policies," each to the extent shareholder authorization is
required. The class vote of holders of shares of the shares of Participating
Preferred Stock and any other Preferred Stock described above will be in
addition to a separate vote of the requisite percentage of shares of Common
Stock and shares of Participating Preferred Stock and any other Preferred Stock,
voting together as a single class, necessary to authorize the action in question
under the Certificate of Incorporation, any Certificate of Designations or
required by law.
The foregoing voting provisions will not apply to any shares of
Participating Preferred Stock if, at or prior to the time when the act with
respect to which such vote otherwise would be required will be effected, such
shares will have been (i) redeemed or (ii) called for redemption and sufficient
consideration provided to the Dividend-Paying Agent to effect such redemption.
LIMITATION UNDER THE 1940 ACT ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
ADDITIONAL PREFERRED STOCK
Under the 1940 Act to which the Company is subject, and in addition to the
terms of the Certificate of Designations of the Participating Preferred Stock,
so long as any shares of Participating Preferred Stock are outstanding, the
Company may issue and sell one or more series of a class of senior securities of
the Company representing indebtedness under the 1940 Act and/or otherwise create
or incur indebtedness, provided that the Company will, immediately after giving
effect to the incurrence of such indebtedness and to its receipt and application
of the proceeds thereof, have an "asset coverage" for all senior securities of
the Company representing indebtedness, as defined in the 1940 Act, of at least
200% of the amount of all indebtedness of the Company then outstanding and no
such additional indebtedness will have any preference or priority over any other
indebtedness of the Company upon the distribution of the assets of the Company
or in respect of the payment of interest. Any possible liability resulting from
lending and/or
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borrowing portfolio securities, entering into reverse repurchase agreements,
entering into futures contracts and writing options, to the extent such
transactions are made in accordance with the investment restrictions of the
Company then in effect, will not be considered to be indebtedness limited by the
Certificate of Designations. In addition, pursuant to an order granted to
Ameritrans and Elk in November 1999, certain bank and SBA indebtedness of Elk is
excluded from the asset coverage requirements imposed on Ameritrans and Elk by
the 1940 Act.
Under the 1940 Act to which the Company is subject, and in addition to the
terms of the Certificate of Designations of the Participating Preferred Stock,
so long as any shares of Participating Preferred Stock are outstanding, the
Company may issue and sell shares of one or more other series of Preferred Stock
constituting a series of a class of senior securities of the Company
representing stock under the 1940 Act in addition to the shares of Participating
Preferred Stock, provided that (i) if the Company is using the proceeds (net of
all offering expenses payable by the Company) of such additional Preferred Stock
to purchase all or a portion of the shares of Participating Preferred Stock or
to redeem or otherwise refinance all or a portion of the shares of Participating
Preferred Stock, any other Preferred Stock, and/or any indebtedness of the
Company then outstanding, then the Company will, immediately after giving effect
to the issuance of such additional Preferred Stock and to its receipt and
application of the proceeds thereof, have an "asset coverage" for all senior
securities of the Company which are stock, as defined in the 1940 Act, of at
least 200% of the shares of Participating Preferred Stock and all other
Preferred Stock of the Company then outstanding or (ii) if the Company is using
the proceeds (net of all offering expenses payable by the Company) of such
additional Preferred Stock for any other purpose, then the Company will,
immediately after giving effect to the issuance of such additional Preferred
Stock and to its receipt and application of the proceeds thereof, have an "asset
coverage" for all senior securities of the Company which are stock, as defined
in the 1940 Act, of at least 200% of the shares of Participating Preferred Stock
and all other Preferred Stock of the Company then outstanding, and, in the case
of either (i) or (ii) above, (iii) no such additional Preferred Stock will have
any preference or priority over any other Preferred Stock of the Company upon
the distribution of the assets of the Company or in respect of the payments of
dividends.
REPURCHASE OF PARTICIPATING PREFERRED STOCK
Ameritrans is a closed-end investment company and, as such, holders of
Participating Preferred Stock do not, and will not, have the right to cause the
Company to redeem their shares of the Company. Ameritrans, however, may redeem
shares of the Participating Preferred Stock when it is deemed advisable by the
Board of Directors in compliance with the requirements of the Certificate of
Designations of the Participating Preferred Stock, the 1940 Act and the rules
and regulations thereunder and the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
ASSET MAINTENANCE
ASSET COVERAGE. The Company will be required under the Certificate of
Designations to maintain at all times asset coverage of at least 200% (or such
higher percentage as may be required under the 1940 Act) with respect to all
outstanding senior securities of the Company which are stock, including the
Participating Preferred Stock.
WARRANTS
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at an exercise price of $6.70, subject to certain adjustments, for five
years from April, 2002. The Warrants may be exercised in whole or in part.
The Warrants were issued under a warrant agreement ("Warrant Agreement")
between the Company and Continental Stock Transfer & Trust Company (the "Warrant
Agent"). The following is a general summary of certain provisions contained in
the Warrant Agreement and is qualified in its entirety by reference to the
Warrant Agreement, a copy of which has been filed as an exhibit to the
Registration Statement, of which this Prospectus is a part.
The Board of Directors of the Company has the right to amend the terms of
the Warrant Agreement at its discretion to, among other things, extend the
exercise period of the Warrants; provided, however, that no amendment adversely
affecting the rights of holders of Warrants may be made without the approval of
the holders of a majority of the affected Warrants, and provided, further, that
no reduction in the number or change in the nature of the securities
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purchasable upon exercise of the Warrant, no increase in the exercise price, or
the acceleration of the expiration date, may be made without the approval of
each holder of a Warrant, unless such changes result from the effect on the
anti-dilution provisions of the Warrant, as summarized below.
Ameritrans has the right to redeem all the Warrants at a price of $0.10
per Warrant upon not less than 30 days' prior written notice; provided that
before any redemption of Warrants can take place, the average closing price of
Ameritrans' Common Stock as reported on NASDAQ shall have been $8.70 per share
for 20 consecutive trading days ending within 30 days prior to the date on which
notice of redemption is sent.
In order for a holder to exercise his or her Warrants, and as required in
the Warrant Agreement, there must be a current registration statement on file
with the Securities and Exchange Commission ("SEC") and various state securities
commissions to continue registration of the shares of Common Stock underlying
such Warrants. The Company will be required to file additional post-effective
amendments when events require such amendments. There can be no assurance that
the registration statement can be kept current. If it is not kept current for
any reason, the Warrants will not be exercisable and will be deprived of any
value. The Company has agreed to use its best efforts to maintain a current
registration statement to permit the issuance of the Common Stock upon exercise
of the Warrants.
Holders of the Warrants will be protected against dilution of the interest
represented by the underlying shares of Common Stock upon the occurrence of
certain events, including, but not limited to, stock dividends, stock-splits,
reclassifications, and mergers. In the event of the complete liquidation and
dissolution of the Company, the Warrants terminate. Holders of the Warrants will
not have voting power and will not be entitled to dividends. In the event of
liquidation, dissolution, or winding up of the Company, holders of the Warrants
will not be entitled to participate in the Company's assets.
TRANSFER AGENT
The transfer agent for our Common Stock is Continental Stock Transfer &
Trust Company, 17 Battery Park South - 8th Floor, New York, New York 10004.
WARRANT AGENT
The warrant agent for the Warrants is Continental Stock Transfer & Trust
Company.
BUSINESS COMBINATION PROVISIONS
Delaware Corporation Law Section 203 is entitled "Business Combinations
with Interested Stockholders." Subject to certain exceptions, Section 203
generally prohibits any Delaware corporation covered by Section 203 from
engaging in any "business combination" with a person who is an "interested
stockholder" for a period of three (3) years following the date such person
became an interested stockholder, unless (i) the Board of Directors approved
either the interested stockholder or business combination in question prior to
the date such person became an interested stockholder, (ii) upon consummation of
the transaction which resulted in such person becoming an interested
stockholder, such interested stockholder owned at least 85% of the voting stock
of the corporation, excluding (for purposes of determining the number of shares
outstanding) stock held by persons who are both directors and officers of the
corporation or by certain employee stock plans, or (iii) the business
combination is approved by both the Board of Directors of the corporation and at
a stockholders' meeting, by two-thirds of the outstanding voting stock not owned
by such interested stockholder.
Companies may choose not to be governed by Section 203, and the Ameritrans
Certificate of Incorporation provides that Ameritrans shall not be governed by
Section 203.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market,
or the perception that such sales could occur, could adversely affect market
prices prevailing from time to time. In addition, several of our principal
-61-
stockholders and entities affiliated with them hold a significant portion of our
outstanding Common Stock, and a decision by one or more of these stockholders to
sell their shares could adversely affect the market price of the Common Stock.
As of the date of this Prospectus, we have outstanding 2,035,600 shares of
Common Stock. Except for the shares currently owned or subsequently acquired by
our affiliates, the outstanding shares will be freely tradeable without
restriction under the Securities Act.
The shares owned by our affiliates may be sold in accordance with the
conditions of Rule 144 of the Securities Act. In general, under Rule 144, an
affiliate would be entitled to sell in brokers' transactions or to market makers
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock (approximately
20,356 shares, based on the number of shares outstanding after the Offering) or
the average weekly trading volume of the Common Stock on the Nasdaq SmallCap
Market during the four (4) calendar weeks preceding the date on which notice of
the sale is filed with the SEC. Sales under Rule 144 are also subject to certain
manner of sale provisions, notice requirements and the availability of current
public information about the company.
We have authorized 200,000 shares of Common Stock under the 1999 Employee
Plan, including 100,000 shares issuable upon the exercise of options that have
been granted under the 1999 Employee Plan. A total of 100,000 shares of Common
Stock remains for future grants under the 1999 Employee Plan. In addition,
75,000 shares of Common Stock have been authorized under the Director Plan,
pursuant to which, options to purchase 22,224 shares have been granted and are
presently outstanding. Upon the approval of the Director Plan amendment by the
SEC, there will be 125,000 shares of Common Stock authorized under the Director
Plan. We intend to file a registration statement under the Securities Act to
register the shares reserved for issuance under the 1999 Employee Plan and the
Director Plan. Shares issued upon exercise of outstanding stock options after
the effective date of such registration statement generally will be tradeable
without restriction under the Securities Act.
PLAN OF DISTRIBUTION
We are registering the resale of the shares underlying the Warrants for
the benefit of the holders of the Warrants and the shares underlying the
Underwriters' Units and Underwriters' Warrants for the benefit of the holders of
the Underwriters' Units and Underwriters' Warrants (the "Selling
Securityholders"). Ameritrans will pay all costs, expenses and fees related to
the registration, including all registration and filing fees, printing expenses,
fees and disbursements of its counsel, blue sky fees and expenses. The Selling
Securityholders' shares may be sold to purchasers from time to time directly by
and subject to the discretion of the Selling Securityholders. The Selling
Securityholders may, from time to time, offer their securities for sale through
underwriters, broker-dealers, or agents, who may receive compensation in the
form of underwriting discounts, concessions, or commissions from the Selling
Securityholders and/or the purchasers of the securities for whom they may act as
agents.
Sales may be made at fixed prices which may be changed, at market prices
prevailing at the time of sale, or at negotiated prices; provided, however, that
the price per share, less any underwriting commissions or discounts, must equal
or exceed the net asset value (the "NAV") per share of Common Stock at the time
of the sale.
Any underwriters, brokers, dealers, or agents who participate in the
distribution of the shares may be deemed to be "underwriters" under the
Securities Act, and any discounts, commissions, or concessions received by any
such underwriters, dealers, or agents may be deemed to be underwriting discounts
and commissions under the Securities Act. Accordingly, any commission, discount
or concession received by them and any profit on the resale of the shares
purchased by them may be deemed to be underwriting discounts or commissions
under the Securities Act of 1933.
In certain states the shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
registration or qualification is available and is complied with. The sale of the
Securityholders' shares may be effected from time to time in transactions, which
may include block transactions, in the over-the-counter market; or in negotiated
transactions; or in a combination of such methods of sale or otherwise.
-62-
The Selling Securityholders will be subject to applicable provisions of
the Securities Exchange Act of 1934 and their associated rules and regulations,
including Regulation M. These provisions may limit the timing of purchases and
sale of shares of the Common Stock of Ameritrans by the Selling Securityholders.
Ameritrans will make copies of this Prospectus available to the Selling
Securityholders and has informed them of the need for delivery of copies of this
Prospectus to purchases at or before the time of any sale of the shares.
OFFERING BY SELLING SECURITYHOLDERS
This Prospectus relates to the resale of shares of our Common Stock
underlying the Warrants and Underwriters' Units by the Selling Securityholders.
The Selling Securityholders hold an aggregate of 300,000 Warrants, which are
convertible into an aggregate of 300,000 shares of Common Stock and 30,000
Underwriters' Units, which were exercisable into 30,000 shares of Common Stock,
and 30,000 Underwriters' Warrants, which are exercisable into 30,000 shares of
Common Stock. The Warrants were publicly distributed pursuant to the Unit
Offering and were listed on the NASDAQ SmallCap Market under the symbol "AMTCW."
Presently, the majority of the Warrants are held in street name. The
Underwriters' Units have not been exercised and are personally held by the
underwriters or their permitted transferees.
The table below sets forth the number of Warrants and the number of shares
of Common Stock beneficially owned by Ameritrans' officers, directors, and
affiliates.
Number of Shares Number of Shares of Number of Shares of Percentage of
of Common Stock Common Stock Common Stock to Be Common Stock
To Be Beneficially Underlying the Beneficially Owned If Outstanding If All
Owned At Warrants Registered All Warrants Are Warrants Are
Name June 17, 2003 for Resale Exercised Exercised
- ---- ------------- ---------- --------- ---------
Gary C. Granoff 346,025 3,300 344,025 16.72%
c/o Ameritrans Capital Corporation
747 Third Avenue, 4th Floor
New York, New York 10017
Lee A. Forlenza 53,418 700 53,418 2.60%
c/o Ameritrans Capital Corporation
747 Third Avenue, 4th Floor
New York, New York 10017
Silvia Mullens 586 293 586 *
c/o Ameritrans Capital Corporation
747 Third Avenue, 4th Floor
New York, New York 10017
- ----------------
* Less than 1%.
There is no assurance that the Selling Securityholders will exercise their
Warrants or will otherwise opt to sell any of the shares offered hereby. To the
extent required, the specific shares to be sold, the names of the Selling
Securityholders, other additional shares of Common Stock beneficially owned by
the Selling Securityholders, the public offering price of the shares to be sold,
the names of any agent, dealer, or underwriter employed by the Selling
Securityholders in connection with such sale, and any applicable commission of
discount with respect to a particular offer will be set forth in an accompanying
prospectus supplement.
EXPERTS
The consolidated financial statements of Ameritrans Capital Corporation
and subsidiaries for the years ended June 30, 2002, 2001, and 2000, included in
this Prospectus have been audited by Marcum & Kliegman LLP, independent public
accountants, as indicated in their report dated September 17, 2002, with respect
thereto and are incorporated herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said report.
-63-
LEGAL MATTERS
The validity of the shares of Common Stock will be passed upon for
Ameritrans by Stursberg & Veith, New York, New York.
ADDITIONAL INFORMATION
We have filed with the SEC a Registration Statement on Form N-2 under the
Securities Act with respect to the shares being registered by this Prospectus.
This Prospectus, filed as part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to Ameritrans and
the Common Stock, you should refer to the Registration Statement, including its
exhibits and schedules. Statements contained in this Prospectus as to the
contents of any contract or any other document are not necessarily complete. In
each instance, we refer you to the copy of such contract or document filed as an
exhibit to the Registration Statement, and each such statement is qualified in
all respects by such reference to the complete document.
As a BDC, we comply with the informational requirements of the 1934 Act,
and, in accordance therewith, we are required to file reports, proxy statements,
and other information with the SEC.
You may inspect the Registration Statement, including all exhibits and
schedules, filed with the SEC, as well as the reports, proxy statements, and
other information we file under the 1934 Act, without charge, at the Public
Reference Room maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices located
at 233 Broadway, New York, New York 10279, and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You can obtain information on the operation of
the Public Reference room by calling the SEC at (800) SEC-0330. The SEC also
maintains a web site that contains reports, proxy statements, and other
information. The address of the SEC's web site is http://www.sec.gov. Copies of
such material may also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Our Common Stock is listed on the
Nasdaq SmallCap Market and our reports, proxy statements and other information
can also be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
-64-
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
INDEPENDENT AUDITORS' REPORT......................................................................F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets at June 30, 2002 and 2001 and March 31, 2003 (unaudited) .............F-3 - 4
Statements of Income for the years ended June 30, 2002, 2001 and 2000 and for the
nine months ended March 31, 2003 and 2002 (unaudited)................................F-5 - 6
Statements of Comprehensive Income for the years ended June 30, 2002, 2001 and 2000
and for the nine months ended March 31, 2003 and 2002 (unaudited)........................F-7
Statements of Stockholders' Equity for the years ended June 30, 2002, 2001 and 2000
and for the nine months ended March 31, 2003 (unaudited)............................F-8 - 10
Statements of Cash Flows for the years ended June 30, 2002, 2001 and 2000 and for
the nine months ended March 31, 2003 and 2002 (unaudited)..........................F-11 - 12
Schedule of Loans as of June 30, 2002...................................................F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................................F-14 - 29
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Ameritrans Capital Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Ameritrans
Capital Corporation and Subsidiaries as of June 30, 2002 and 2001, and the
related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for the years ended June 30, 2002, 2001 and 2000 and the
schedule of loans as of June 30, 2002. These consolidated financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements and schedule referred to
above present fairly, in all material respects, the financial position of
Ameritrans Capital Corporation and Subsidiaries as of June 30, 2002 and 2001,
and the results of their operations and their cash flows for the years ended
June 30, 2002, 2001 and 2000 in conformity with accounting principles generally
accepted in the United States of America.
As explained in Note 1, the consolidated financial statements include loans
valued at $54,791,331 and $54,241,470 as of June 30, 2002 and 2001,
respectively, whose values have been estimated by the Board of Directors in the
absence of readily ascertainable market values. We have reviewed the procedures
used by the Board of Directors in arriving at their estimate of the value of
such loans and have inspected underlying documentation and, in the
circumstances, we believe the procedures are reasonable and the documentation is
appropriate. However, because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would have been
used had a ready market for such loans existed, and the differences could be
material.
New York, NY
September 17, 2002
/s/ Marcum & Kliegman, LLP
- --------------------------
F-2
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2002 and 2001 and March 31, 2003 (unaudited)
ASSETS
2002 2001 March 31, 2003
---- ---- (unaudited)
------------
Loans receivable ......................................... $ 55,029,831 $ 54,559,970 $ 56,973,994
Less: unrealized depreciation on loans receivable .... (238,500) (318,500) (238,500)
------------ ------------ ------------
54,791,331 54,241,470 56,735,494
Cash and cash equivalents ................................ 774,062 575,229 763,213
Accrued interest receivable, net of unrealized
depreciation of $206,272, $-0-and $399,000 respectively 1,197,075 985,334 1,465,484
Assets acquired in satisfaction of loans ................. 1,108,088 932,814 942,189
Receivables from debtors on sales of assets acquired
in satisfaction of loan ............................... 367,271 421,823 431,258
Equity securities ........................................ 443,327 436,914 964,563
Furniture, fixtures and leasehold improvements, net ...... 107,757 101,902 168,333
Prepaid expenses and other assets ........................ 219,305 289,383 487,652
------------ ------------ ------------
TOTAL ASSETS ............................................. $ 59,008,216 $ 57,984,869 $ 61,958,186
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-3
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2002 and 2001 and March 31, 2003 (unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 2003
2002 2001 (unaudited)
---- ---- --------------
CURRENT LIABILITIES
Debentures payable to SBA ................................................... $ 7,860,000 $ 8,880,000 $ 9,200,000
Notes payable, bank ......................................................... 33,720,000 35,550,000 35,780,000
Accrued expenses and other liabilities ...................................... 434,339 456,316 436,761
Accrued interest payable .................................................... 258,358 291,427 127,229
Dividends payable ........................................................... 68,438 -- 84,375
------------ ------------ ------------
TOTAL LIABILITIES ........................................................... 42,341,135 45,177,743 45,628,365
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock 500,000, 1,000,000, and 500,000 shares authorized,
none outstanding, respectively ............................................ -- -- --
9 3/8% Cumulative participating preferred stock $.01 par value, $12.00
face value, 500,000, -0-, and 500,000 shares authorized; 300,000, -0-, and
300,000 shares issued and outstanding, respectively ....................... 3,600,000 -- 3,600,000
Common stock, $.0001 par value: 5,000,000 shares authorized; 2,045,600,
1,745,600, and 2,045,600 shares issued, 2,035,600, 1,745,600, and 2,035,600
outstanding, respectively ................................................. 205 175 205
Additional paid in capital .................................................. 13,869,545 13,471,474 13,869,545
Accumulated deficit ......................................................... (703,127) (678,593) (1,040,387)
Accumulated other comprehensive (loss) income ............................... (29,542) 14,070 (29,542)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY .................................................... 16,737,081 12,807,126 16,399,821
Treasury stock, at cost, 10,000, -0-, and 10,000 shares of common
stock, respectively ....................................................... (70,000) -- (70,000)
------------ ------------ ------------
NET STOCKHOLDERS' EQUITY ...................................................... 16,667,081 12,807,126 16,329,821
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................... $ 59,008,216 $ 57,984,869 $ 61,958,186
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-4
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended June 30, 2002, 2001 and 2000
and the Nine Months Ended March 31, 2003 and 2002 (unaudited)
For the nine For the nine
months ended months ended
March 31, 2003 March 31, 2002
2002 2001 2000 (unaudited) (unaudited)
---- ---- ---- ----------- -----------
INVESTMENT INCOME
Interest on loans receivable ........................ $ 5,984,678 $ 6,165,910 $ 6,177,218 $ 4,593,638 $ 4,433,111
Fees and other income ............................... 285,041 273,882 425,179 151,149 204,328
----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT INCOME ............................. 6,269,719 6,439,792 6,602,397 4,744,787 4,637,439
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Interest ............................................ 2,632,918 3,392,202 3,345,526 1,622,264 2,025,435
Salaries and employee benefits ...................... 769,633 627,013 594,804 654,103 554,741
Legal fees .......................................... 232,494 187,183 395,366 235,415 183,263
Miscellaneous administrative expenses ............... 1,087,822 1,006,543 883,915 954,472 706,440
Loss on assets acquired in satisfaction of loans, net 78,907 122,912 61,546 72,464 64,660
Directors' fees ..................................... 29,750 19,750 36,875 27,250 19,075
Foreclosure expenses ................................ -- -- -- 281,838 --
Write off and depreciation of interest and
loans receivable .................................. 393,145 225,235 617,846 412,884 215,931
----------- ----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES ............................ 5,224,669 5,580,838 5,935,878 4,260,690 3,769,545
----------- ----------- ----------- ----------- -----------
OPERATING INCOME .................................... 1,045,050 858,954 666,519 484,097 867,894
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Net gain from rental activities ..................... 2,700 15,000 7,233 -- --
Gain on sale of securities .......................... -- 121,637 231,703 -- --
Recapitalization costs .............................. -- -- (423,045) -- --
Terminated offering costs ........................... -- -- (256,087) -- --
Terminated merger costs ............................. -- (413,186) -- -- --
----------- ----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) ........................ 2,700 (276,549) (440,196) -- --
----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
F-5
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME-Continued
For the Years Ended June 30, 2002, 2001 and 2000
and the Nine months ended March 31, 2003 and 2002 (unaudited)
For the nine For the nine
months ended months ended
March 31, 2003 March 31, 2002
2002 2001 2000 (unaudited) (unaudited)
---- ---- ---- ----------- -----------
INCOME BEFORE INCOME TAXES ........ 1,047,750 582,405 226,323 484,097 867,894
INCOME TAXES ...................... 8,854 7,896 13,571 15,926 7,596
----------- ----------- ----------- ----------- -----------
NET INCOME ...................... 1,038,896 574,509 212,752 468,171 860,298
=========== =========== =========== =========== ===========
DIVIDENDS ON PREFERRED STOCK ...... (68,438) -- -- (253,125) --
=========== =========== =========== =========== ===========
NET INCOME AVAILABLE
TO COMMON STOCKHOLDERS .......... $ 970,458 $ 574,509 $ 212,752 $ 215,046 $ 860,298
=========== =========== =========== =========== ===========
Weighted Average Shares Outstanding
Basic ........................... 1,800,614 1,745,600 1,745,600 2,035,600 1,745,600
=========== =========== =========== =========== ===========
Diluted ......................... 1,800,614 1,745,600 1,750,600 2,035,600 1,745,600
=========== =========== =========== =========== ===========
Net Income Per Common share
Basic ........................... $ 0.54 $ 0.33 $ 0.12 $ 0.11 $ 0.49
=========== =========== =========== =========== ===========
Diluted ......................... $ 0.54 $ 0.33 $ 0.12 $ 0.11 $ 0.49
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended June 30, 2002, 2001 and 2000
and the Nine Months Ended March 31, 2003 and 2002 (unaudited)
For the nine For the nine
months ended months ended
March 31, 2003 March 31, 2002
2002 2001 2000 (unaudited) (unaudited)
---- ---- ---- ----------- -----------
NET INCOME .................................. $ 1,038,896 $ 574,509 $ 212,752 $ 468,171 $ 860,298
OTHER COMPREHENSIVE INCOME
Unrealized (loss) gain on equity
securities arising during the period ..... (43,612) (4,852) 84,283 -- --
Reclassification adjustment for gains
included in net income ................... -- (118,512) (208,602) -- --
------------ ------------ ------------ ------------ ------------
TOTAL COMPREHENSIVE INCOME ................ $ 995,284 $ 451,145 $ 88,433 $ 468,171 $ 860,298
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-7
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 2002, 2001 and 2000 and the Nine Months Ended March
31, 2003 (unaudited)
Shares of Common Shares of Preferred
Common Stock Preferred Stock Additional
Stock $0.0001 Par Stock $0.01 Par Paid-In
Outstanding Value Outstanding Value Capital
----------- ----- ----------- ----- -------
BALANCE - July 1, 1999 ...................... 1,745,600 $ 175 -- $ -- $ 13,214,558
Transfer of restricted capital ............ -- -- -- -- 256,916
Dividends paid on common stock ............ -- -- -- -- --
Net Income ................................ -- -- -- -- --
Unrealized gain on equity
securities arising during the period .... -- -- -- -- --
Reclassification adjustment for
gains included in net income ............ -- -- -- -- --
------------- ------------- ------------- ------------- -------------
BALANCE - June 30, 2000 ..................... 1,745,600 175 -- -- 13,471,474
------------- ------------- ------------- ------------- -------------
Retained Accumulated
Earnings Other
Treasury Restricted (Accumulated Comprehensive
Stock Capital Deficit) Income (loss) Total
----- ------- -------- ------------- -----
BALANCE - July 1, 1999 ...................... -- $ 256,916 4,815 $ 261,753 $ 13,738,217
Transfer of restricted capital ............ -- (256,916) -- -- --
Dividends paid on common stock ............ -- -- (942,624) -- (942,624)
Net Income ................................ -- -- 212,752 -- 212,752
Unrealized gain on equity securities
arising during the period ............... -- -- -- 84,283 84,283
Reclassification adjustment for
gains included in net income ............ -- -- -- (208,602) (208,602)
------------- ------------- ------------- ------------- -------------
BALANCE - June 30, 2000 ..................... -- -- (725,057) 137,434 12,884,026
------------- ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these financial statements.
F-8
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY-Continued
For the Years Ended June 30, 2002, 2001 and 2000 and the Nine Months Ended March
31, 2003 (unaudited)
Shares of Common Shares of Preferred
Common Stock Preferred Stock Additional
Stock $0.0001 Par Stock $0.01 Par Paid-In
Outstanding Value Outstanding Value Capital
----------- ----- ----------- ----- -------
(Balance forward)
BALANCE - June 30, 2000 ..................... 1,745,600 175 -- -- 13,471,474
------------ ------------ ------------ ------------ ------------
Dividends declared on common stock ........ -- -- -- -- --
Net income ................................ -- -- -- -- --
Unrealized gain on equity securities
arising during the period ............... -- -- -- -- --
Reclassification adjustments of
intercompany amount paid to parent ...... -- -- -- -- --
Reclassification adjustment for gains
included in net income .................. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE - June 30, 2001 ..................... 1,745,600 175 -- -- 13,471,474
Dividends declared on common stock ........ -- -- -- -- --
Dividends declared on preferred stock ..... -- -- -- -- --
Net income ................................ -- -- -- -- --
Unrealized loss on equity securities
arising during the period ............... -- -- -- -- --
Net proceeds from stock offering .......... 300,000 30 300,000 3,600,000 395,571
Issuance of warrants ...................... -- -- -- -- 2,500
Reacquisition of common stock ............. (10,000) -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE - June 30, 2002 ..................... 2,035,600 205 300,000 $ 3,600,000 $ 13,869,545
Dividends declared on common stock ........ -- -- -- -- --
Dividends declared on preferred stock ..... -- -- -- -- --
Net income (unaudited) .................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE - March 31, 2003 (unaudited) ........ 2,035,600 205 300,000 $ 3,600,000 $ 13,869,545
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-9
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY-Continued
For the Years Ended June 30, 2002, 2001 and 2000 and the Six Months Ended
December 31, 2002 (unaudited)
Retained Accumulated
Earnings Other
Treasury Restricted (Accumulated Comprehensive
Stock Capital Deficit) Income (loss) Total
----- ------- -------- ------------- -----
(Balance forward)
BALANCE - June 30, 2000 ..................... -- -- (725,057) 137,434 12,884,026
------------ ------------ ------------ ------------ ------------
Dividends declared on common stock ........ -- -- (528,045) -- (528,045)
Net income ................................ -- -- 574,509 -- 574,508
Unrealized gain on equity securities
arising during the period ............... -- -- -- (4,852) (4,852)
Reclassification adjustments of
intercompany amount paid to parent ...... -- -- -- -- --
Reclassification adjustment for gains
included in net income .................. -- -- -- (118,512) (118,512)
------------ ------------ ------------ ------------ ------------
BALANCE - June 30, 2001 ..................... -- -- (678,593) 14,070 12,807,126
Dividends declared on common stock ........ -- -- (994,991) -- (994,991)
Dividends declared on preferred stock ..... -- -- (68,438) -- (68,438)
Net income ................................ -- -- 1,038,896 -- 1,038,896
Unrealized loss on equity securities
arising during the period ............... -- -- -- (43,612) (43,612)
Net proceeds from stock offering .......... -- -- -- -- 3,995,601
Issuance of warrants ...................... -- -- -- -- 2,500
Reacquisition of common stock ............. (70,000) -- -- -- (70,000)
------------ ------------ ------------ ------------ ------------
BALANCE - June 30, 2002 ..................... (70,000) -- (703,127) (29,542) 16,667,081
Dividends declared on common stock ........ -- -- (552,306) -- (552,306)
Dividends declared on preferred stock ..... -- -- (253,125) -- (253,125)
Net income (unaudited) .................... -- -- 468,171 -- 468,171
------------ ------------ ------------ ------------ ------------
BALANCE - March 31, 2003 (unaudited) ........ $ (70,000) $ -- $ (1,040,387) $ (29,542) $ 16,329,821
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-10
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2002, 2001 and 2000
and the Nine Months Ended March 31, 2003 and 2002 (unaudited)
For the Nine For the Nine
Months Ended Months Ended
March 31, 2003 March 31, 2002
2002 2001 2000 (unaudited) (unaudited)
---- ---- ---- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................. $ 1,038,896 $ 574,509 $ 212,752 $ 468,171 $ 860,298
----------- ----------- ----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................ 68,633 65,739 74,714 23,187 49,084
Gain on sale of equity securities .................... -- (121,637) (231,703) -- --
Changes in operating assets and liabilities:
Changes in unrealized depreciation on loans receivable (80,000) (61,500) -- -- --
Accrued interest receivable .......................... (211,741) (56,569) (214,139) (268,409) (351,845)
Prepaid expenses and other assets .................... 33,469 153,882 522 (268,347) (812,840)
Accrued expenses and other liabilities ............... (21,977) 90,988 141,870 2,422 (82,558)
Accrued interest payable ............................. (33,069) (73,843) 10,352 (131,129) (96,429)
----------- ----------- ----------- ----------- -----------
TOTAL ADJUSTMENTS .................................. (244,685) (2,940) (218,384) (642,276) (1,294,588)
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES ..................... 794,211 571,569 (5,632) (174,105) (434,290)
----------- ----------- ----------- ----------- -----------
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 .... (660,583) 2,245,032 (6,013,277) (1,842,256) 704,063
Net sales (purchases) of equity securities ........... (50,025) 193,333 364,796 (521,226) (50,025)
Acquisition of furniture, fixtures and
leasehold improvements ............................. (37,879) (33,167) (54,838) (83,763) (20,960)
----------- ----------- ----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES ............................... (748,487) 2,405,198 (5,703,319) (2,447,245) 633,078
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from unit stock offering ................ 3,998,101 -- -- -- --
(Repayment of) proceeds from notes payable, banks, net (1,830,000) (2,250,000) 6,800,000 2,060,000 750,000
Proceeds from debentures payable to SBA .............. 5,050,00
Payments of debentures payable to SBA ................ (1,020,000) -- -- (3,710,000) --
Dividends paid ....................................... (994,991) (528,045) (1,256,832) (789,499) (785,520)
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ................................. 153,110 (2,778,045) 5,543,168 2,610,501 (35,520)
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................................. 198,834 198,722 (165,783) (10,849) 163,268
The accompanying notes are an integral part of these financial statements.
F-11
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2002, 2001 and 2000
and the Nine Months Ended March 31, 2003 and 2002 (unaudited)
For the Nine For the Nine
Months Ended Months Ended
March 31, 2003 March 31, 2002
2002 2001 2000 (unaudited) (unaudited)
---- ---- ---- ----------- -----------
CASH AND CASH EQUIVALENTS - Beginning ................. 575,228 376,507 542,290 774,062 575,229
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS - Ending .................... $ 774,062 $ 575,229 $ 376,507 $ 763,213 $ 738,497
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the periods:
Interest ............................................ $ 2,665,987 $ 3,548,409 $ 3,357,555 $ 1,753,393 $ 2,121,863
Taxes ............................................... $ 8,551 $ 1,822 $ 9,864 $ 15,926 $ 7,596
Non-cash investing and financing activities:
Conversion of loans to assets acquired
in satisfaction of loans ............................ $ (366,210) $ (344,949) $ -- $ -- $ --
Unrealized (loss) gains on equity
securities arising during the period .............. $ (43,612) $ (4,852) $ 84,283 $ -- $ --
Reclassification adjustment for gains
included in net income ............................ $ -- $ (118,512) $ (208,602) $ -- $ --
Transfer of restricted capital ...................... $ -- $ -- $ 256,916 $ -- $ --
Declaration of preferred stock cash dividend ........ $ 68,438 $ -- $ -- $ 84,375 $ --
Declaration of common stock cash dividend ........... $ -- $ -- $ 314,208 $ -- $ 209,472
Reacquisition of common stock (See Note 8) .......... $ 70,000 $ -- $ -- $ -- $ --
The accompanying notes are an integral part of these financial statements.
F-12
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
SCHEDULE OF LOANS
June 30, 2002
Number of Interest Maturity Dates Balance
Type of Loan Loans Rates (In Months) Outstanding
------------ ----- ----- ----------- -----------
New York City:
Taxi medallion.................................... 80 7 - 16% 2 - 180 $13,899,244
Radio car service................................. 18 11 - 15% 3 - 48 140,319
Chicago:
Taxi medallion.................................... 437 11 - 16% 1 - 120 23,109,314
Boston:
Taxi medallion.................................... 13 9.5 - 11% 1 - 46 1,229,791
Miami:
Taxi medallion.................................... 75 10.5 - 16% 21 - 113 2,629,349
Other loans:
Restaurant........................................ 5 10 - 15% 30 - 120 555,577
Car Wash/Auto Center.............................. 6 8 - 15% 29 - 57 718,157
Dry Cleaner....................................... 12 10.5 - 18% 24 - 96 1,153,153
Laundromat........................................ 35 7.5 - 18% 29 - 76 6,435,635
Laundry Equipment Dealer.......................... 1 9.5% 40 172,160
Financial Services................................ 1 14% 108 252,781
Black Car Service (real property)................. 2 10.5 - 11% 48 412,524
Auto Sales........................................ 5 11 - 13% 12 - 96 571,515
Movie Theater..................................... 1 16% 108 169,478
Retirement home................................... 3 13.5 - 14.5% 84 - 120 440,141
Commercial construction........................... 3 13 - 16% 48 - 63 676,139
Telecommunications................................ 1 12% 42 154,866
Leather Goods..................................... 1 16% 53 190,000
Beverage distributor.............................. 1 14.5% 163 194,488
Marina............................................ 1 14.5% 45 192,007
Construction supplies............................. 1 13% 43 125,000
Plumbing & heating supplies....................... 1 14% 106 143,559
Recycling......................................... 1 14.5% 48 150,000
Real Estate....................................... 1 13.5% 54 138,236
Florist........................................... 1 7.25% 118 395,508
Food Market....................................... 2 12 - 16% 82 - 120 198,890
Debt Collection................................... 1 17.5% 35 500,000
Housing renovator................................. 1 15.00% 12 82,000
-----------
Total Loans Receivable............................... 55,029,831
Less: Unrealized depreciation on loans receivable ... (238,500)
-----------
Loans Receivable, net............................ $54,791,331
===========
The accompanying notes are an integral part of these financial statements.
F-13
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Summary of Significant Accounting Policies
Organization and Principal Business Activity
Ameritrans Capital Corporation ("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. In the accompanying financial
statements, the capital structure and earnings per share of Elk has been
retroactively restated to reflect the share exchange as if it occurred at
the beginning of the periods presented.
Elk, a New York corporation, is licensed by the Small Business
Administration ("SBA") to operate as a Small Business Investment Company
("SBIC") under the Small Business Investment Act of 1958, as amended. Elk
has also registered as an investment company under the Investment Company
Act of 1940 to make business loans.
Ameritrans is a specialty finance company that through its subsidiary,
Elk, makes loans to taxi owners, to finance the acquisition and operation
of the medallion taxi businesses and related assets, and to other small
businesses in the New York City, Chicago, Miami, and Boston markets.
Basis of Consolidation
The consolidated financial statements include the accounts of Ameritrans,
Elk and EAF Holding Corporation ("EAF"), a wholly owned subsidiary of Elk,
collectively referred to as the "Company." All significant inter-company
transactions have been eliminated in consolidation.
EAF was formed in June 1992 and began operations in December 1993. The
purpose of EAF is to own and operate certain real estate assets acquired
in satisfaction of loans by Elk.
Ameritrans organized another subsidiary on June 8, 1998, Elk Capital
Corporation ("Elk Capital"), which will engage in similar lending and
investment activities. Since inception, Elk Capital has had no operations
and activities.
Loan Valuations
The Company's loans are recorded at fair value. Since no ready market
exists for these loans, the fair value is determined in good faith by the
Board of Directors. In determining the fair value, the Company and Board
of Directors considers factors such as the financial condition of the
borrower, the adequacy of the collateral, individual credit risks,
historical loss experience and the relationships between current and
projected market rates and portfolio rates of interest and maturities. To
date, the fair value of the loans has been determined to approximate cost
less unrealized depreciation and no loans have been recorded above cost.
The unrealized depreciation has generally been caused by specific events
related to credit risk. Loans are placed on nonaccrual status once they
become 180 days past due as to principal or interest. In addition, loans
that are not fully collateralized and in the process of collection are
placed on nonaccrual status when, in the judgment of management, the
ultimate collectability of interest and principal is doubtful.
F-14
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Summary of Significant Accounting Policies, continued
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 June 30, 2002 and 2001.
Income Taxes
Ameritrans and Elk have 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 2002, the Company intends to make the required distributions to
its stockholders in accordance with applicable tax rules.
Depreciation and Amortization
Depreciation and amortization of furniture, fixtures and leasehold
improvements is computed on the straight-line method at rates adequate to
allocate the cost of applicable assets over their expected useful lives.
Net Income per Share
During the year ended June 30, 1998, the Company adopted the provision of
SFAS No. 128, "Earnings per Share." 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 for the period. Common
stock equivalents have been excluded from the weighted-average shares for
2002, 2001 and 2000 as inclusion is anti-dilutive.
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 June 30, 2002 and 2001, loan costs and commitment fees amounted to
$163,812 and $80,421, respectively, net of accumulated amortization of
$200,169 and $163,560, respectively. Amortization expense for the years
ended June 30, 2002 and 2001 and 2000 was $36,609, $24,455 and $24,455
respectively.
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 unrealized depreciation on loans receivable. Subsequent
reductions in estimated net realizable value are recorded as losses on
assets acquired in satisfaction of loans.
F-15
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Summary of Significant Accounting Policies, continued
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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
fair value of loans receivable 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 expenses 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" ("APB 25") 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 that
public enterprises report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements regarding products and
services, geographic areas and major customers. SFAS No. 131 defines
operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and
in assessing performance. The Company has determined that under SFAS No.
131, it operates in one segment of financing services. The Company's
customers and operations are within the United States.
F-16
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Summary of Significant Accounting Policies, continued
Accounting for Derivatives and Hedging Activities
The Company adopted the provisions of Statement of Financial Accounting
Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities" on July 1, 2000. SFAS No. 133 requires that all
derivative instruments be reported on the balance sheet at their fair
values. For derivative instruments designed as cash flow hedges, the
effective portion of any hedge is reported in accumulated other
comprehensive income (loss) until it is recorded in earnings during the
same period in which the hedged item affects earnings. The ineffective
portion of all hedges is recognized in current period earnings. Changes in
the fair values of derivative instruments that are not designated as
hedges are recorded in current period earnings.
The adoption of SFAS 133 did not have a material impact on the financial
statements of the Company.
New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," in
August 2001. Statement No. 144 changes the accounting for long-lived
assets to be held and used by eliminating the requirement to allocate
goodwill to long-lived assets to be tested for impairment, by providing a
probability weighted cash flow estimation approach to deal with situations
in which alternative courses of action to recover the carrying amount of
possible future cash flows and by establishing a primary-asset approach to
determine the cash flow estimation period for a group of assets and
liabilities that represents the unit of accounting for long-lived assets
to be held and used. Statement No. 144 changes the accounting for
long-lived assets to be disposed of other than by sale by requiring that
the depreciable life of a long-lived asset to be abandoned be revised to
reflect a shortened useful life and by requiring that an impairment loss
to be recognized at the date a long-lived asset is exchanged for a similar
productive asset or distributed to owners in spin-off if the carrying
amount of the asset exceeds its fair value.
Statement No. 144 changes the accounting for long-lived assets to be
disposed of by sale by requiring that discounted operations no longer be
recognized on a net realizable value basis (but at the lower of carrying
amount or fair value less costs to sell), by eliminating the recognition
of future operating losses of discounted components before they occur and
by broadening the presentation of discontinued operations in the income
statement to include a component of any entity rather than a segment of a
business. A component of an entity comprises operations and cash flows
that can be clearly distinguished, operationally, and for financial
reporting purposes, from the rest of the entity. The effective date for
Statement No. 144 was for fiscal years beginning after December 15, 2001.
The adoption of Statement No. 144 did not have a material impact on the
financial statements of the Company.
In December 1999, the Securities and Exchange Commission ("SEC") staff
released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition
in Financial Statements." SAB No. 101 provides interpretive guidance on
the recognition, presentation and disclosure of revenue in the financial
statements. SAB No. 101 was adopted by the Company during the fourth
quarter of fiscal 2001, and did not have a material impact on the
Company's financial statements.
F-17
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Summary of Significant Accounting Policies, continued
New Accounting Pronouncements, continued
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141 ("SFAS No. 141"), "Business Combinations." SFAS No. 141 requires
the purchase method of accounting for business combinations initiated
after June 30, 2001 and eliminates the pooling-of-interests method. The
adoption of SFAS No. 141 did not have a material impact on the financial
statements of the Company.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets", SFAS No.
142 requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of
assessing potential future impairment of goodwill. The adoption of SFAS
No. 142 did not have a material impact on the financial statements of the
Company.
In July 2001, the staff of SEC released SAB 102, "Selected Loan Loss
Allowance Methodology and Documentation Issues" ("SAB 102"), to provide
guidance on the development, documentation and application of a systematic
methodology as required by Financial Reporting Release No. 28 for
determining allowances for loan and lease losses in accordance with
generally accepted accounting principles. The adoption of SAB 102 did not
have a material impact on the financial statements of the Company.
On April 30, 2002 the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 eliminates the requirement that gains
and losses from the extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect
and eliminates an inconsistency between the accounting for sale- leaseback
transactions and certain lease modifications that have economic effects
that are similar to sale-leaseback transactions. The adoption of SFAS No.
145 did not have a material impact on the financial statements of the
Company.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("SFAS 146"), provides guidance on the recognition and
measurement of liabilities for cost associated with exit or disposal
activities. The adoption of SFAS No. 146 did not have a material impact on
the financial statements of the Company.
On December 31, 2002, the FASB issued SFAS No. 148 ("SFAS 148"),
"Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS
148 amends SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," to provide an alternative method of transition to SFAS
123's fair value method of accounting for stock-based employee
compensation. SFAS 148 also amends the disclosure provisions of SFAS 123
and APB opinion No. 28, "Interim Financial Reporting," to require
disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based
employee compensation on reported net income and earnings per share in
annual and interim financial statements. While the statement does not
amend SFAS 123 to require companies to account for employee stock options
using the fair value method, the disclosure provisions of SFAS 123 are
applicable to all companies with stock-based employee compensation,
regardless of whether they account for that compensation using the fair
value method of SFAS 123 or the intrinsic value method of APB opinion No.
25. The Company will continue to account for
F-18
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
stock-based compensation according to APB opinion No. 25. The adoption of
SFAS 148 did not have an impact on net income or pro forma net income
applying the fair value method as the Company did not have stock-based
compensation for the years ended June 30, 2002 and 2001 and for the nine
months ended March 31, 2003 (unaudited). Proforma net income and proforma
net income per share applying the fair value method for the year ended
June 30, 2000 is summarized in the following table:
June 30, 2000
-------------
Net income, available to common stockholders,
as reported $ 212,752
Deduct: Total stock-based employee compensation
expense determined under fair value-based method
for all awards (83,784)
---------
Pro-forma net income $ 128,968
Basic and diluted net income per
share as reported $ 0.12
=========
Basic and diluted pro forma net
income per share $ 0.07
=========
The fair value of the options at the date of grant was estimated using the
Black-Scholes fair value based method with the following weighted average
assumptions for the year ended June 30, 2000:
June 30, 2000
-------------
Average life 5 years
Risk-free rate 5.23% - 6.18%
Dividend yield 7.5%
Volatility factor 0.72
The weighted average fair value of the options at the date of grant using
the fair value based method during 2000 was estimated at $2.51
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires a
company, at the time it issues a guarantee, to recognize an initial
liability for the fair value of the obligations assumed under the
guarantee and elaborates on existing disclosure requirements related to
guarantees and warrants. The requirements did not have a significant
impact on the Company's Consolidated Financial Statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51" ("FIN 46"). FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity
investors in the equity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new variable
interest entities created or acquired after January 31, 2003. The
provisions of FIN 46 must be applied for the first interim or annual
period beginning after June 15, 2003. The Company does not expect the
adoption of FIN 46 to have a significant impact on its results of
operations and financial conditions.
In April 2003, FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and
for hedging activities under SFAS 133. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 except for the
provisions that were cleared by the FASB in prior pronouncements. The
Company expects that the adoption of SFAS No. 149 will not have a
significant impact on its financial statements
On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity". SFAS No. 150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS No. 150 affects the issuer's accounting for three
types of freestanding financial instruments.
* Mandatorily redeemable shares, which the issuing company is obligated to
buy back in exchange for cash or other assets.
* Instruments that do or may require the issuer to buy back some of its
shares in exchange for cash or other assets; includes put options and
forward purchase contracts.
* Obligations that can be settled with shares, the monetary value of which
is fixed, tied solely or predominantly to a variable such as a market
index, or varies inversely with the value of the issuers' shares.
SFAS No. 150 does not apply to features embedded in a financial instrument
that is not a derivative in its entirety. Most of the guidance in SFAS No.
150 is effective for all financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The Company expects
that the adoption of SFAS No. 150 will not have a significant impact on
its financial statements.
NOTE 2 - Assets Acquired in Satisfaction of Loans
Receivables from debtors on sales of assets acquired in satisfaction of
loans represent loans to borrowers arising out of the sales of defaulted
assets. Pursuant to SBA regulations, these loans are presented separately
in the accompanying consolidated balance sheets.
Assets acquired in satisfaction of loans consist of the following for the
years ended June 30, 2002 and 2001:
Assigned
Mortgage and
Real Estate Radio Cars Artwork Note Equipment Total
----------- ---------- ------- ---- --------- -----
BALANCE, July 1, 2000 .... $ 190,935 $ 21,241 $ 38,250 $ 358,680 $ -- $ 609,106
Additions ........... 287,500 -- -- 57,449 -- 344,949
Sales ............... -- (21,241) -- -- -- (21,241)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 2001 ... 478,435 -- 38,250 416,129 -- 932,814
Additions ........... -- -- -- 240,310 125,899 360,209
Sales ............... (190,935) -- -- -- -- (190,935)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 2002 ... $ 287,500 $ -- $ 38,250 $ 656,439 $ 125,899 $ 1,108,088
=========== =========== =========== =========== =========== ===========
NOTE 3 - Loans Receivable
All loans on nonaccrual status have been classified as nonperforming. The
Company recognizes interest income on a cash basis on these loans if the
principal is fully secured. However, where there is doubt regarding the
ultimate collectability of the loan principal, cash receipts, whether
designated as principal or interest, are applied to reduce the carrying
value of the loan. The Company has loans totaling approximately $4,637,000
and $2,973,000 at June 30, 2002 and 2001 respectively, which are still
accruing interest but are not performing according to the terms of the
contract. At June 30, 2002 and 2001 approximately $1,333,000 and
$2,973,000, respectively, of these loans were fully collateralized as to
principal and interest. At June 30, 2002 and 2001
F-19
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
approximately $3,304,000 and $-0- were partially collateralized as to
principal and interest. Interest receivable at June 30, 2002 and 2001
totaled approximately $487,000 and $38,000 respectively, for such loans.
The following table sets forth certain information concerning
nonperforming loans as of June 30, 2002 and 2001:
2002 2001
---- ----
Nonperforming loans with unrealized depreciation .. $ -- $ 409,067
Nonperforming loans without unrealized depreciation 5,009,250 2,774,238
---------- ----------
Total Nonperforming Loans ..................... $5,009,250 $3,183,305
========== ==========
Unrealized depreciation for nonperforming loans ... $ -- $ 80,000
========== ==========
Average balance of nonperforming loans ............ $4,096,277 $2,273,154
========== ==========
Changes in the unrealized depreciation on interest receivable and loans
receivable are summarized as follows:
Unrealized
depreciation on Unrealized
interest depreciation on
receivable loans receivable
---------- ----------------
BALANCE, July 1, 2000 ... $ -- $380,000
Decreases, net ....... -- (61,500)
-------- --------
BALANCE, June 30, 2001 .. -- 318,500
Increase, net ........ 206,272 --
Decreases, net ....... -- (80,000)
-------- --------
BALANCE, June 30, 2002 .. $206,272 $238,500
======== ========
F-20
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - Equity Securities
Equity securities consist of the following as of June 30, 2002 and 2001:
Chicago Miami Dry Tele-
Taxicab Taxicab Cleaner communications Cosmetics
Medallions Medallions Company and Technology Company Total
---------- ---------- ------- -------------- ------- -----
BALANCE, July 1, 2000 ............ $ 173,283 $ 144,115 $ 14,000 $ 300,576 -- $ 631,974
Purchase of securities ........... -- -- -- 63,224 -- 63,224
Sale of securities ............ (109,317) (25,603) -- -- -- (134,920)
Unrealized loss on equity
securities arising during the
period ...................... (4,852) -- -- -- -- (4,852)
Reclassification adjustment
for gains included
in net income ............... -- (118,512) -- -- -- (118,512)
---------- ----------- ---------- ---------- ---------- ----------
BALANCE, June 30, 2001 ........... 59,114 -- 14,000 363,800 -- 436,914
---------- ----------- ---------- ---------- ---------- ----------
Purchase of securities ........ -- -- -- -- 50,025 50,025
Unrealized loss on equity
securities arising during the
period ...................... (274) -- -- (11,655) (31,683) (43,612)
---------- ----------- ---------- ---------- ---------- ----------
BALANCE, June 30, 2002 ........... $ 58,840 $ -- $ 14,000 $ 352,145 $ 18,342 $ 443,327
========== =========== ========== ========== ========== ==========
At June 30, 2002, the fair value of the Chicago taxicab medallions,
telecommunications company and cosmetics company were decreased resulting
in unrealized loss. At June 30, 2001 the fair value of Chicago taxicab
medallions also decreased which resulted in an unrealized loss. The
Company uses the specific identification method to calculate gains and
losses on the sales of equity securities.
NOTE 5 - Debentures Payable to SBA
At March 31, 2003 (unaudited), June 30, 2002 and 2001, debentures
payable to the SBA consist of subordinated debentures with interest
payable semiannually, as follows:
March 31, 2003
(unaudited) June 30, 2002 June 30, 2001
Current Effective Principal Principal Principal
Issue Date Due Date Interest Rate Amount Amount Amount
- ---------- -------- ------------- ------ ------ ------
September 1993 September 2003 6.12(1) $1,500,000 $1,500,000 $1,500,000
September 1993 September 2003 6.12 2,220,000 2,220,000 2,220,000
September 1994 September 2004 8.20(4) 2,690,000 2,690,000
December 1995 December 2005 6.54(3) 1,020,000
June 1996 June 2006 7.71 1,020,000 1,020,000
March 1997 March 2007 7.38(2) 430,000 430,000 430,000
July 2002 September 2012 4.67(5) 2,050,000
December 2002 March 2013 4.63(5) 3,000,000
---------- ---------- ----------
$9,200,000 $7,860,000 $8,880,000
========== ========== ==========
(1) Interest rate was 3.12% from inception through September 1998.
(2) The Company is also required to pay an additional annual user fee of 1% on
this debenture.
(3) The loan was prepaid in full during June 30, 2002.
(4) See Note 16.
(5) The Company is also required to pay an additional annual user fee of .87%
on this debenture (unaudited).
F-21
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
SBA Commitment
During 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 2.5% leverage fee will be deducted pro rata as the commitment proceeds
are drawn down, of which a $120,000 non-refundable fee has been paid by
the Company.
SBA Debenture
During September 2002, a debenture payable to SBA in the amount of
$2,690,000 with an 8.2% interest rate, expiring September 2004 was prepaid
along with all accrued interest.
During July 2002, a new debenture payable to SBA was drawn from the
reserved pool of $12,000,000 in the amount of $2,050,000 with an interim
interest rate of 2.351%. The fixed rate of 4.67% was determined on the
pooling date of September 25, 2002. In addition to the fixed rate, there
is an additional annual SBA user fee of 0.87% per annum that will also be
charged making the rate 5.54% before applicable amortization of points and
fees.
During December 2002, another new debenture payable to SBA was drawn from
the reserve pool of $12,000,000 in the amount of $3,000,000 (unaudited)
with an interim interest rate of 1.927%. The fixed rate of 4.628% was
determined on the pooling date of March 26, 2003. In addition to the fixed
interest rate, there is an additional annual SBA user fee of 0.87% per
annum that will also be charged, making the rate 5.498% before applicable
amortization of points and fees.
NOTE 6 - Notes Payable to Banks
At March 31, 2003 (unaudited), June 30, 2002 and 2001, the Company had
loan agreements with three (3) banks for lines of credit aggregating
$40,000,000. At March 31, 2003 (unaudited), June 30, 2002 and 2001, the
Company had $35,780,000 (unaudited), $33,720,000, and $35,550,000,
respectively, outstanding under these lines. The loans, which mature
through November 2003 (unaudited), bear interest based on the Company's
choice of the lower of either the reserve adjusted LIBOR rate plus 150
basis points or the banks' prime rates minus 1/2% plus certain fees
(unaudited). Upon maturity, the Company anticipates extending the lines of
credit for another year, as has been the practice in previous years.
Pursuant to the terms of the agreements the Company is required to comply
with certain terms, covenants and conditions. The Company pledged its
loans receivable and other assets as collateral for the above lines of
credit.
NOTE 7 - Preferred Stock
Ameritrans had 1,000,000 shares of "blank check" preferred shares
authorized of which 500,000 shares were designated as 9 3/8% cumulative
participating preferred stock $.01 par value, $12.00 face value.
Therefore, as of June 30, 2002 there are 500,000 shares of "blank check"
preferred shares authorized of which none are issued and outstanding.
Pursuant to the April 24, 2002 stock offering (See Note 9) Ameritrans has
500,000 shares of 9 3/8% cumulative participating preferred stock $.01 par
value, $12.00 face value of which 300,000 shares are issued and
outstanding as of June 30, 2002. These preferred shares are redeemable at
the option of the Company at the face value plus a range of 10% to -0-% of
face value through April 2007.
NOTE 8 - Common Stock
Ameritrans has 5,000,000 authorized common shares, $0.0001 par value, of
which 1,745,600 shares were issued and outstanding after the shares
exchange with Elk (see Note 1) as of June 30, 2001.
Pursuant to the April 24, 2002 stock offering (See Note 9) Ameritrans
issued an additional 300,000 shares of common stock.
Pursuant to a foreclosure agreement with a borrower, Elk obtained 10,000
shares of Ameritrans common stock, which had previously been pledged by
the borrower as collateral. At June 30, 2002 these shares are recorded as
treasury stock at cost, which was the approximate market value of the
shares at the foreclosure date.
NOTE 9 - Stock Offering
On April 24, 2002, the Company completed a public offering of 300,000
units, each unit consisting of one share of Common Stock, one share of 9
3/8% cumulative participating preferred stock, face value $12.00, and one
redeemable Warrant exercisable into one share of Common Stock. Each
Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $6.70, subject to adjustment, until April 2007. The
Warrants may be redeemed by the Company under certain conditions. The
gross proceeds from the sale was $5,700,000 less costs and commissions of
$1,704,399 resulting in net proceeds of $3,995,601. The underwriter had
the option to increase this offering by 45,000 units to cover
over-allotments through June 2, 2002. This over-allotment option was not
exercised. The underwriter earned the right in exchange for $2,500 to
purchase up to 30,000 units, each unit consisting of one share of Common
Stock, one share of 9 3/8%
F-22
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - Stock Offering, continued
participating preferred stock (face value $12.00) and one warrant to
purchase one share of common stock at an exercise price of $8.40. These
units are exercisable over a five year period commencing April 18, 2003 at
an exercise price of $21.45 per unit.
NOTE 10 - Income Taxes
The provision for income tax expense for the years ended June 30, 2002,
2001 and 2000 consists of the following:
2002 2001 2000
---- ---- ----
Federal ................... $1,067 $2,562 $ 986
State and City ............ 7,787 5,334 12,585
------ ------ -------
$8,854 $7,896 $13,571
====== ====== =======
The above provision represents income taxes incurred on undistributed
income for the respective years.
NOTE 11 - Related Party Transactions
The Company paid $63,733, $28,865 and $63,688 to a related law firm for
the years June 30, 2002, 2001 and 2000, respectively, for the services
provided. The Company generally charges its borrowers loan origination
fees to generate income to offset expenses incurred by the Company for
legal fees paid by the Company for loan closing services.
During the years ended June 30, 2001 and 2000, the Company rented office
space on a month-to-month basis from an affiliated entity without a formal
lease agreement. On July 1, 2001 the Company entered into a sublease
agreement with this affiliated entity with rental payments of $3,292 per
month plus expense, which expires April 30, 2004. As made part of this
agreement the affiliated entity, at the Company's request, rented an
additional 1,800 square feet of office space contiguous with the Company's
offices. Until the Company requires the additional space, the affiliated
entity sublets the additional space to outside tenants. In the event all
or a portion of the additional space is vacant, The Company has agreed to
reimburse the affiliated entity for any additional rent due up to a
maximum of $58,000 per year. During the year ended June 30, 2002 the
Company paid the affiliated entity approximately $7,000 relating to this
additional space. Rent expense amounted to $44,965, $39,600, and $39,600
for the years ended June 30, 2002, 2001 and 2000, respectively.
The Company also shares overhead costs and reimburses this affiliated
entity for office and salary expenses. As made part of the sublease
agreement with the affiliated entity, overhead cost payments will be a
minimum of $7,333 per month expiring April 30, 2004. Overhead costs and
reimbursed office and salary expenses amounted to $98,925, $91,301 and
$88,186 for the years ended June 30, 2002, 2001 and 2000, respectively.
NOTE 12 - Commitments and Contingencies
Interest Rate Swap
On January 10, 2000, the Company entered into a $5,000,000 interest rate
Swap transaction with a bank which expired on October 8, 2001. On June 11,
2001, the Company entered into an additional interest rate Swap
transaction with the same bank for $10,000,000 which expired on June 11,
2002. On June 11, 2001, the Company entered into another interest rate
Swap transaction for $15,000,000 with this bank expiring June 11,2003.
These Swap transactions were entered into to protect the Company from an
upward movement in interest rates relating to outstanding bank debt (see
Note 6 for terms and effective interest rates). These Swap transactions
call for a fixed rate of 4.95%, 4.35% and 4.95%, respectively for the
Company and if the floating one month LIBOR rate is below the fixed rate
then the Company is obligated to pay the bank for the difference in rates.
When the one-month LIBOR rate is above the fixed rate then the bank is
obligated to pay the Company for the differences in rates. The effective
fixed costs on the outstanding bank debt that was swapped including the
150 basis points was 6.45%, 5.85% and 6.45%, respectively.
Loan Commitments
At March 31, 2003 (unaudited) and June 30, 2002 and 2001, the Company had
commitments to make loans totaling approximately $3,276,500 (unaudited),
$1,515,297, and $547,500, respectively, at interest rates ranging from 6%
to 17.5% (unaudited).
Employment Agreements
During November 2001, the Company entered into an employment agreement
with an executive effective as of July 1, 2001, which was subsequently
amended by an agreement dated December 31, 2002 (unaudited). The amended
employment agreement provides for a minimum base salary of $255,000, which
increases to $296,500 as of July 1, 2003, and thereafter increases yearly,
plus an annual bonus. The amended employment agreement terminates on July
1, 2008 but will be automatically renewed for five (5) years unless either
the Company or the executive gives notice of non-renewal. The amended
employment agreement also provides for confidentiality and for
non-competition, and non-solicitation during the term of the agreement and
for one (1) year thereafter.
During November 2001, the Company also entered into a consulting agreement
dated July 1, 2001 with the executive discussed above, which was
subsequently amended by an agreement dated December 31, 2002 (unaudited).
The amended consulting agreement does not become effective and does not
commence unless and until the employment agreement is terminated due to
(i) the executive's voluntary resignation from the Company or (ii) a
notice of non-renewal of the employment agreement from either the Company
or the executive. Upon the effectiveness of the amended consulting
agreement, the consultant shall be paid at a rate equal to 1/2 the monthly
salary in effect at the time the employment agreement is terminated plus
any bonus received for that employment year and other benefits. The
agreement also provides for confidentiality and non-competition for the
term of the agreement, and non-solicitation during the term of the
agreement and for one (1) year thereafter.
Additionally, during November 2001, the Company entered into employment
agreements with five (5) other executives. The Company subsequently
amended two of the employment agreements by agreements dated December 31,
2002 (unaudited). The two amended employment agreements are for an initial
term which expires on July 1, 2008 but which shall be automatically
renewed for five (5) years unless either the Company or the executive
gives notice of non-renewal. The remaining three employment agreements,
two of which are dated january 1, 2002 and the third as of October 1,
2001, are for terms of five (5) years but are also automatically renewed
for five (5) years unless either the Company or the executive gives notice
of non-renewal. The five employment agreements provide for minimum
salaries of, in the aggregate, $372,800 (unaudited) per annum, which
increases to $415,000 (unaudited) per annum as of July 1, 2003, and
thereafter increases yearly, plus annual bonuses. The agreements provided
for confidentiality and for non-competition for the terms of the
agreements, and non-solicitation during the term of the agreements and for
one (1) year thereafter.
F-23
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - Defined Contribution Plan
On April 15, 1996, the Company adopted a simplified employee pension plan
covering all eligible employees of the Company. Contributions to the plan
are at the discretion of the Board of Directors. During the years ended
June 30, 2002, 2001 and 2000, contributions amounted to $79,484, $77,289
and $72,463, respectively.
NOTE 14 - Stock Option Plans
Employee Incentive Stock Option Plan
During September 1998, Elk adopted an employee incentive stock option
plan, an aggregate of 125,000 shares of Common Stock were authorized for
issuance under the plan. Subsequently Ameritrans adopted an employee stock
option plan which is substantially identical to and successor to the Elk
plan. During January 2002, the plan was amended to increase the shares of
Common Stock authorized for issuance to an aggregate of 200,000 shares.
The plan provides that options may be granted to attract and retain key
employees of the Company. Options granted under the plan are exercisable
for periods ranging from five to ten years.
Employee Incentive Stock Option Plan, continued
In addition, the option price will be at least market value or at least
110% of market value of the Common Stock on the grant date for employees
and stockholders who own more than 5% of the Common Stock, respectively.
In January 1999, the Company granted 100,000 options to certain key
employees at an exercise price ranging from $8.875 to $9.7625 per share.
There were no options granted during the years ended June 30, 2002 or
2001.
Non-Employee Directors Stock Option Plan
On August 31, 1999, the SEC approved a Non-Employee Directors Stock Option
Plan with an aggregate of 75,000 options authorized for issuance. During
January 2002, the Board of Directors and stockholders approved an
amendment to the plan to increase the aggregate of options authorized for
issuance to 125,000 and to provide for the automatic grants of options
upon re-election of eligible directors. This amendment to the plan is
subject to SEC approval. The plan provides that options may be granted to
attract and retain qualified persons to serve as directors of the Company.
Options granted under this plan are exercisable twelve months from the
date of grant and expire five years from the date of grant. In addition,
the option price will not be less than the market value of the Common
Stock on the grant date. On August 31, 1999, the Company granted 22,224
options to four directors at an exercise price of $9.00 per share. During
the year ended June 30, 2002, 11,112 of these options were subsequently
terminated. In January 2000, the Company granted an additional 11,112
options to two directors at an exercise price of $9.00 per share. There
were no additional options granted for the years ended June 30, 2002 or
2001.
F-24
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - Stock Option Plans, continued
Activities under these Employee and Non-Employee plans are as follows:
Weighted Average
Number of Weighted Average Remaining Life
Options Exercise Price Contractual
------- -------------- -----------
BALANCE - July 1, 2000 133,336 $9.11 6.3
BALANCE - June 30, 2001 133,336 $9.11 5.3
Options forfeited (11,112) $9.00 --
------- ----- ---
BALANCE - June 30, 2002 122,224 $9.12 4.3
======= ===== ===
Exercisable - June 30, 2002 122,224 $9.12 4.3
======= ===== ===
F-25
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - Other Matters
Terminated Merger Costs
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. Merger
costs incurred by the Company in the amount of $413,186 have been recorded
as an expense for the year ended June 30, 2001.
Terminating Offering Costs
Based on the proposed merger with Medallion Financial Corp., the Company
had at that time determined not to pursue and therefore expensed as of May
4, 2000, deferred offering costs incurred by the Company in relation to a
proposed public offering in the amount of $256,087 for the year ended June
30, 2000.
Recapitalization Costs
In connection with the share for share exchange between Elk and Ameritrans
on December 16, 1999 (see Note 1), recapitalization costs incurred by the
Company in the amount of $423,045 have been recorded as an expense for the
year ended June 30, 2000.
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 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 - Loans receivable are recorded at their estimated fair
value.
Equity Securities - The Company's equity securities consist of investments
in corporations who own and operate Chicago taxicab medallions (13%), a
dry cleaner (3%), a cosmetic company (4%), and a Telecommunications
Company (80%) (see Note 4).
Debentures Payable to Small Business Administration - The fair value of
debentures as of June 30, 2002 and 2001 were approximately $7,542,924 and
$8,780,791, 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 (see Note 5).
F-26
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - Other Matters, continued
The fair value of financial instruments that are short-term or reprice
frequently and have a history of negligible credit losses is considered to
approximate their carrying value. Those instruments include balances
recorded in the following captions:
ASSETS LIABILITIES
--------------------------------------------------------------------------
Cash Notes payable, banks
Accrued interest receivable Accrued interest payable
Assets acquired in satisfaction of loans
Receivables from debtors on sales of
assets acquired in satisfaction of loans
NOTE 16 - Subsequent Events
Quarterly Dividend
On September 26, 2002 Company's Board of Directors declared a dividend of
$0.06 per share of Common Stock for the fourth quarter of 2002, and an
estimated dividend for the first quarter of 2003 of $0.11 per share of
Common Stock or an aggregate of $347,752. The dividend was paid on October
16, 2002 to stockholders of record on October 7, 2002.
The Company's Board of Directors declared a dividend of $0.28125 per share
or $84,375 on September 20, 2002 on the Participating Preferred Stock for
the period July 1, 2002 through September 30, 2002, which was paid on
October 7, 2002 to all holders of the Participating Preferred stock of
record as of September 30, 2002.
On January 10, 2003, the Company's Board of Directors declared a dividend
of $0.10 per share of Common Stock, or an aggregate of $204,560
(unaudited), for the period October 1, 2002 through December 31, 2002. The
dividend was paid on January 28, 2003 to stockholders of record as of
January 20, 2003.
The Company's Board of Directors declared a dividend of $0.28125 per
share, or an aggregate of $84,375 (unaudited) on December 23, 2002 on the
Company's Participating Preferred Stock for the period October 1, 2002
through December 31, 2002. The dividend was paid on January 28, 2003 to
all holders of the Participating Preferred Stock of record as of December
31, 2002.
The Company's Board of Directors declared a dividend of $0.28125 per
share, or an aggregate of $84,375 (unaudited), on March 21, 2003 on the
Company's Participating Preferred Stock for the period January 1, 2003
through March 31, 2003. The dividend was paid on April 10, 2003 to all
holders of the Participating Preferred Stock of record as of March 31,
2003.
The Company's Board of Directors declared a dividend of $0.28125 per
share, or an aggregate of $84,375 (unaudited), on June 12, 2003 on the
Company's Participating Preferred stock for the period April 1, 2003
through June 30, 2003. The dividend is payable on July 15, 2003 to all
holders of the Participating Preferred Stock of record as of June 30,
2003.
The Company's Board of Directors did not declare a dividend on the Common
Stock for the period January 1, 2003 through March 31, 2003 in view of the
Company's reported loss for the quarter.
F-27
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - Quarterly Financial Data (Unaudited)
For the Year Ended June 30, 2001
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Investment income................. $1,624,328 $1,598,210 $1,729,567 $1,487,687
Operating income.................. 89,842 307,464 323,115 138,533
Income before taxes............... 89,842 319,594 19,435 153,534
F-28
AMERITRANS CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - Quarterly Financial Data (Unaudited), continued
For the Year Ended June 30, 2001, continued
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Net Income........................ 87,751 314,245 16,783 155,730
Net income per common share
Basic......................... 0.05 0.18 .01 .09
Diluted....................... 0.05 0.18 .01 .09
For the Year Ended June 30, 2002
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Investment income................. $1,525,331 $1,473,801 $1,638,307 $1,632,280
Operating income.................. 321,422 323,075 220,697 179,856
Income before taxes............... 322,622 323,075 222,197 179,856
Net income........................ 321,552 323,075 215,671 178,598
Net income per common share
Basic......................... 0.18 0.19 0.12 0.05
Diluted....................... 0.18 0.19 0.12 0.05
NOTE 18 - Unaudited Financial Statements
The consolidated balance sheet of Ameritrans Capital Corporation as of
March 31, 2003, the related statements of income, and cash flows for the
nine months ended March 31, 2003 and 2002 have been prepared by the
Company, without audit pursuant to the rules and regulations of the
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management the accompanying
interim 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, 2003 are not
necessarily indicative of the results of operations for the full year or
any other interim period.
F-29
AMERITRANS CAPITAL CORPORATION
747 THIRD AVENUE, 4TH FLOOR
NEW YORK, NEW YORK 10017
(212) 355-2449
STATEMENT OF ADDITIONAL INFORMATION
June 24, 2003
This Statement of Additional Information (the "SAI") relates to Ameritrans
Capital Corporation ("Ameritrans") and is not a prospectus. The Prospectus,
dated June 24, 2003 (the "Prospectus"), sets forth concisely certain information
about Ameritrans that investors should know before investing, and it should be
read and retained for further reference. Copies of the Prospectus and additional
copies of the SAI may be obtained without charge by writing or telephoning
Ameritrans at the address and telephone number set forth above.
The Prospectus and this SAI may omit certain of the information contained
in the registration statement filed with the Securities and Exchange Commission
("SEC"), Washington, D.C. The registration statement may be obtained from the
SEC upon payment of the fee prescribed, or inspected at the SEC's office at no
charge.
Neither the SEC nor any securities commission has approved or disapproved
these securities or determined if the Prospectus is truthful or complete. Any
representations to the contrary is a criminal offense.
TABLE OF CONTENTS
PAGE
----
INVESTMENT OBJECTIVES AND POLICIES......................................SAI-2
MANAGEMENT..............................................................SAI-5
CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS..............................SAI-9
FEDERAL INCOME TAX CONSIDERATIONS......................................SAI-11
SAI-1
INVESTMENT OBJECTIVES AND POLICIES
ELK INVESTMENT POLICIES
The investment policies described below are the fundamental policies of
Elk. Under the 1940 Act, these policies may be changed only by the vote of the
lesser of (i) a majority of Elk's outstanding Common Stock, or (ii) 67% of the
number of shares of Common Stock present in person or by proxy at a stockholder
meeting at which at least 50% of the outstanding shares of Common Stock are
present. Because Ameritrans is the only stockholder of Elk, we have agreed with
the SEC that Elk's fundamental investment policies will be changed only by the
vote of the Ameritrans stockholders.
(a) ISSUANCE OF SENIOR SECURITIES. Elk may issue subordinated debentures
to the SBA in the maximum amounts permissible under the 1958 Act and the
applicable regulations. Elk currently does not have any preferred stock
authorized.
(b) BORROWING OF MONEY. Elk has the power to borrow funds from banks,
trust companies, other financial institutions, the SBA or any successor agency
and/or other private or governmental sources, if determined by Elk's Board of
Directors to be in its best interests.
(c) UNDERWRITING. Elk has not engaged, and does not intend to engage, in
the business of underwriting the securities of other issuers.
(d) CONCENTRATION OF INVESTMENTS. Elk may not concentrate 25% or more of
its total assets in securities of issuers in any industry group except the taxi
industry. Elk will make at least 25% of its investments for financing the
purchase or continued ownership of taxi medallions, taxis and related assets.
The balance of its investments includes, and Elk intends to continue to finance,
the acquisition and/or operation of other small businesses.
(e) REAL ESTATE. Elk has not engaged, and does not intend to engage, in
the purchase and sale of real estate. However, Elk may elect to purchase and
sell real estate in order to protect any of its prior investments which it
considers at risk.
(f) COMMODITIES CONTRACTS. Elk has not engaged, and does not intend to
engage, in the purchase and sale of commodities or commodities contracts.
(g) LOANS. Elk has made, and will continue to make, loans to Small
Business Concerns in accordance with the provisions of the 1958 Act and the SBA
Regulations.
(h) WRITING OPTIONS. Elk has not engaged, and does not intend to engage,
in the writing of options.
(i) SHORT SALES. Elk has not engaged, and does not intend to engage, in
short sales of securities.
(j) PURCHASING SECURITIES ON MARGIN. Elk has not engaged, and does not
intend to engage, in the purchase of securities on margin.
(k) FUTURES CONTRACTS. Elk has not engaged, and does not intend to engage,
in the purchase or sale of futures contracts.
(l) RESTRICTED SECURITIES. Elk may invest up to 100% of its assets in
restricted securities.
(m) TYPES OF INVESTMENTS. Although Elk was organized primarily to provide
long term loan funds to Small Business Concerns, Elk's certificate of
incorporation provides Elk with the authority to invest in the equity capital of
Small Business Concerns. Accordingly, Elk may make equity investments in Small
Business Concerns if determined by its Board of Directors to be in the best
interests of Elk.
(n) MAXIMUM INVESTMENT. Elk will not lend or otherwise invest more than
the lesser of (i) 10% of its total assets or (ii) 30% of its paid-in capital
attributable to its Common Stock with respect to any one Small Business Concern.
(o) PERCENTAGE OF VOTING SECURITIES. The percentage of voting securities
of any one Small Business Concern which Elk may acquire may not exceed 49% of
the outstanding voting equities of such Small Business Concern.
(p) MANAGEMENT CONTROL. Elk does not intend to invest in any company for
the purpose of exercising control of management. However, Elk may elect to
acquire control in order to protect any of its prior investments which it
considers at risk.
(q) INVESTMENT COMPANIES. Elk has not invested, and does not intend to
invest, in the securities of other investment companies.
(r) PORTFOLIO TURNOVER. Elk intends to make changes in its portfolio when,
in the judgment of its Board of Directors, such changes will be in the best
interest of our stockholders in light of the then existing business and
financial conditions. We do not anticipate that Elk's loan portfolio will
realize an annual turnover in excess of 50%, although there can be no assurance
with respect thereto.
AMERITRANS INVESTMENT POLICIES
Ameritrans' only fundamental policies, that is, policies that cannot be
changed without the approval of the holders of a majority of Ameritrans'
outstanding voting securities, as defined under the 1940 Act, are the
restrictions described below. A "majority of Ameritrans' outstanding voting
securities"
SAI-2
as defined under the 1940 Act means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares. The other policies
and investment restrictions referred to in this Prospectus, including
Ameritrans' investment objectives, are not fundamental policies of Ameritrans
and may be changed by Ameritrans' Board of Directors without stockholder
approval. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of Ameritrans' assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of Ameritrans' acquisition of such security or other asset.
Accordingly, any subsequent change in values, assets, or other circumstances
will not be considered when determining whether the investment complies with
Ameritrans' investment policies and limitations. Ameritrans' fundamental
policies are as follows:
(a) Ameritrans will at all times conduct its business so as to retain its
status as a BDC under the 1940 Act. In order to retain that status, Ameritrans
may not acquire any assets (other than non-investment assets necessary and
appropriate to its operations as a BDC) if, after giving effect to such
acquisition, the value of its "Qualifying Assets," amount to less than 70% of
the value of its total assets. See "Regulation."
(b) Ameritrans may borrow funds and issue "senior securities" to the
maximum extent permitted under the 1940 Act. As a BDC, Ameritrans may issue
senior securities if, immediately after such issuance, the senior securities
will have an asset coverage of at least 200%. Under the 1940 Act, subordinated
debentures issued to or guaranteed by the SBA, the preferred stock issued to the
SBA by Elk and Elk's bank borrowings may be considered senior securities issued
by Ameritrans requiring asset coverage of 200%; however, pursuant to an
Exemptive Order issued by the SEC on December 7, 1999, such debentures,
preferred stock issued to the SBA and bank borrowings are exempt from the asset
coverage requirements of the 1940 Act.
(c) Ameritrans will not (i) underwrite securities issued by others (except
to the extent that it may be considered an "underwriter" within the meaning of
the Securities Act in the disposition of restricted securities), (ii) engage in
short sales of securities, (iii) purchase securities on margin (except to the
extent that it may purchase securities with borrowed money), (iv) write or buy
put or call options, or (v) engage in the purchase or sale of commodities or
commodity contracts, including futures contracts (except where necessary in
working out distressed loan or investment situations). Ameritrans and Elk may
purchase interest rate caps and swaps covering up to 100% of their variable rate
debt. In addition, Ameritrans may sponsor the securitization of loan portfolios.
(d) Ameritrans and Elk may originate loans and loans with equity features.
To the extent permitted under the 1940 Act and the regulations promulgated
thereunder, Ameritrans may also make loans as permitted (i) under its existing
stock option plans, (ii) under plans providing for options for disinterested
directors that might be adopted by Ameritrans in the future, and (iii) to
officers and directors for the purchase of Ameritrans Common Stock.
(e) Ameritrans will hold all of the outstanding common stock of Elk and
Elk Capital and may organize additional subsidiaries in the future. Ameritrans
may acquire restricted securities of small businesses.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
directors and executive officers of the Company:
NAME ADDRESS POSITION
- ---- ------- --------
Gary C. Granoff(1)(2) c/o Ameritrans Capital Corporation President and Chairman of Board of
747 Third Avenue, 4th Floor Directors
New York, New York 10017
Ellen M. Walker(1)(2) c/o Ameritrans Capital Corporation Executive Vice President and Director
747 Third Avenue, 4th Floor
New York, New York 10017
Lee A. Forlenza(1)(2) c/o Ameritrans Capital Corporation Senior Vice President and Director
747 Third Avenue, 4th Floor
New York, New York 10017
Margaret Chance(2) c/o Ameritrans Capital Corporation Vice President and Secretary
747 Third Avenue, 4th Floor
New York, New York 10017
Silvia Mullens(2) c/o Ameritrans Capital Corporation Vice President
747 Third Avenue, 4th Floor
New York, New York 10017
Steven Etra(2) 55-25 58th Street Vice President and Director
Maspeth, New York
Paul Creditor 747 Third Avenue, Ste. 4C, New York, New Director
York
SAI-3
NAME ADDRESS POSITION
- ---- ------- --------
Allen Kaplan c/o Team Systems, 30-17 40th Avenue, Long Director
Island City, New York
John Laird 481 Canoe Hill Road Director
New Canaan, Connecticut
Howard Sommer c/o New York Community Investment Co., LLC, Director
110 Williams Street, 32nd Floor, New York,
NY
Wesley Finch c/o The Finch Group Director
1801 Clint Moore Road, Suite 210
Boca Raton, Florida 33487-2752
- ----------
(1) Ellen M. Walker, Gary C. Granoff and Lee A. Forlenza are officers and
shareholders in the law firm of Granoff, Walker & Forlenza, P.C.
(2) Mr. Gary C. Granoff, Ms. Ellen M. Walker, Mr. Lee A. Forlenza, Mr. Steven
Etra, Ms. Margaret Chance and Ms. Silvia Mullens are each "interested
persons" with respect to the Company, as such term is defined in the 1940
Act.
COMMITTEES OF THE BOARD AND MEETING ATTENDANCE
Ameritrans has a standing Audit Committee, a standing Compensation
Committee and a 1999 Employee Plan Committee.
The Audit Committee is presently comprised of Paul Creditor, John Laird
and Howard Sommer. The function of the Audit Committee is to review our internal
accounting control procedures, review our consolidated financial statements, and
review with the independent public accountants the results of their audit. The
Audit Committee held two meetings during fiscal 2002 and, to date, has held five
meetings during fiscal 2003.
The Compensation Committee reviews the Company's employment and
compensation agreements with its employees. The committee is comprised of Allen
Kaplan, John Laird, and Wesley Finch. The Compensation Committee was formed in
August, 2001 and has held two formal meetings.
The 1999 Employee Plan Committee administers the Company's 1999 Employee
stock option plan. The 1999 Employee Plan Committee is comprised of Allen Kaplan
and John Laird.
The Board of Directors held three formal meetings during fiscal 2002. Six
of the Board's directors attended each of the meetings of the Board, and three
directors missed one meeting each. The Board has held three meetings during
fiscal 2003.
EXECUTIVE COMPENSATION
The following table sets forth all remuneration for services rendered to
the Company to (i) each of the executive officers and (ii) all executive
officers as a group during the fiscal year ended June 30, 2002. No non-employee
director received compensation in excess of $60,000 during that period.
NAME AND PRINCIPAL POSITION CASH COMPENSATION(1) SEP BENEFIT(2)
- --------------------------- -------------------- --------------
Gary C. Granoff, President $ 258,250(3) $ 25,500
Ellen M. Walker, Executive Vice President
and General Counsel $ 115,800 $ 17,370
Lee A. Forlenza, Senior Vice President $ 51,500 $ 7,725
Steven Etra, Vice President $ 31,000 $ 0
Silvia Mullens, Vice President $ 100,522 $ 15,078
Margaret Chance, Vice President and Secretary $ 88,207 $ 13,231
All executive officers as a group (6 persons) $ 645,279 $ 78,904
- ---------
(1) Officers' salaries constitute a major portion of Elk's total "management
fee compensation," which must be approved by the SBA. The SBA has approved
total officer and employee compensation of $648,000 for Elk. This amount
includes officers' salaries, other salaries and employee benefits.
(2) Simplified Employee Pension Plan.
(3) Does not include $35,000 of reimbursable expenses.
No stock options were granted to any named executive officer during the
fiscal year ended June 30, 2002.
SAI-4
Ameritrans and Elk have a policy of paying their directors who are not
employees fees of $750 for each meeting attended. Since July 1, 1996,
non-employee directors have been paid annual fees of $2,000 per year in addition
to the fees paid for each meeting attended. Fees and expenses paid to
non-affiliated directors were, in the aggregate, $36,875 for the year ended June
30, 2000, $19,750 for the year ended June 30, 2001, and $29,750 for the year
ended June 30, 2002.
EXECUTIVE COMPENSATION PROGRAM
Annual compensation for Ameritrans' executives consists of two principal
elements: cash compensation, consisting of salaries and bonuses, and stock
options.
CASH COMPENSATION
In setting the annual base salaries for Ameritrans' executives, the Board
of Directors reviews the aggregate salary and bonus compensation for individuals
in comparable positions with other companies, including competitors of
Ameritrans, and adjusts such amounts to reflect individual performance. Many of
these companies are specialty finance companies. Ameritrans also regularly
compares the salary levels of its executive officers with other lending
companies.
Increases in annual base salary are based on a review and evaluation of
the performance of the activity for which the executive has responsibility, the
impact of that activity on Ameritrans and the skills and experience required for
the job, coupled with a comparison of these elements with similar elements for
other executives both inside and outside Ameritrans.
Cash bonuses are tied directly to Ameritrans' financial performance and
the contribution of the executive to such performance.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with six of our employees. We
are required to disclose the terms of the agreements for five of those
individuals:
Gary Granoff. We entered into an amended and restated employment agreement
with Gary Granoff dated December 31, 2002, for a term of five (5) years
commencing July 1, 2003, which replaces the employment agreement by and between
the Company and Mr. Granoff dated July 1, 2001. The agreement automatically
renews for a five (5) year term, unless either party gives notice of non-renewal
as provided therein. The agreement provides that Mr. Granoff will be paid an
annual salary of $296,500 commencing July 1, 2003, which increases each year the
agreement is in effect. The agreement also provides that Mr. Granoff will be
paid a yearly bonus, based on his and Ameritrans' performance, an amount of
which is determined by the Board of Directors but which may not be less than
$15,000 per year for the first five (5) years of the employment agreement. If
renewed, any bonus will be given solely in the Board's discretion. The agreement
also provides for compensation to Mr. Granoff if he is terminated prior to the
expiration of his employment term, the amount of which varies depending upon the
nature of his termination. If, for instance, Mr. Granoff is terminated without
cause (as defined in the agreement) he is entitled to a lump-sum payment in an
amount equal to (i) his salary, as in effect at the time of termination, through
the date of termination and an amount equal to his salary multiplied by the
number of years remaining under the agreement, and (ii) an amount equal to all
of the consulting fees payable under the terms of Mr. Granoff's consulting
agreement with Ameritrans, as discussed below. The employment agreement also
provides for confidentiality and for non-competition, and non-solicitation
during the term of the agreement and for one (1) year thereafter.
In conjunction with the employment agreement we also entered into an
amended and restated consulting agreement with Mr. Granoff, which replaces the
consulting agreement by and between the Company and Mr. Granoff dated as of July
1, 2001. The consulting agreement does not become effective and does not
commence unless and until the employment agreement is terminated due to (i) Mr.
Granoff's voluntary resignation from the Company or (ii) a notice of non-renewal
of the employment agreement from either the Company or the Consultant. Upon the
effectiveness of the consulting agreement Mr. Granoff shall be paid as a
consultant at a rate equal to 1/2 the monthly salary in effect at the time the
employment agreement is terminated plus any bonus received, if any, for that
employment year and other benefits. The agreement also provides for
confidentiality and non-competition for the term of the agreement, and
non-solicitation during the term of the agreement and for one (1) year
thereafter.
Ellen Walker. We entered into an employment agreement with Ellen Walker
for a term of five (5) years dated as of October 1, 2001. The agreement
automatically renews for another five (5) year term unless either party
terminates prior to renewal. The agreement provides that Ms. Walker will be paid
an annual salary, which presently is $118,976, and increases each year the
agreement is in effect. The agreement also provides that Ms. Walker will be paid
a yearly bonus, at the discretion of Ameritrans, based on her and the Company's
performance. The agreement provides for compensation to Ms. Walker if she is
terminated prior to the expiration of her employment term, the exact amount of
which varies depending upon the nature of the termination. If, for instance, Ms.
Walker terminates the employment agreement for good reason (as defined in the
agreement) she is entitled to a lump-sum payment equal to the sum of her salary,
as in effect at the time of termination, and an amount equal to her salary
multiplied by the number of years remaining under the agreement or two-and-one
half years, whichever is greater. The agreement also provides for
confidentiality and for non-competition and non-solicitation during the term of
the agreement and for one (1) year thereafter.
Silvia Mullens. The agreement with Ms. Mullens is for a term of five years
dated as of January 1, 2002. The agreement automatically renews for another
five-year term unless either party terminates prior to renewal. The agreement
provides that Ms. Mullens will be paid an annual salary of $95,400, which
increases five percent (5%) each year the agreement is in effect. The agreement
also provides that Ms. Mullens will be paid a yearly bonus, at the discretion of
Ameritrans, based on her and the Company's performance. The agreement provides
for compensation to Ms. Mullens if she is terminated prior to the expiration of
her employment term, the exact amount of which varies depending upon the nature
of the termination. If, for instance, Ms. Mullens terminates the employment
agreement for good reason (as defined in the agreement), she is entitled to a
lump-sum payment equal to the sum of her salary, as in effect at the time of
termination, and an amount equal to her salary multiplied by the number of years
remaining under the agreement
SAI-5
or two-and-one-half (2 1/2) years, whichever is greater. The agreement also
provides for confidentiality and for non-competition and non-solicitation during
the term of the agreement and for one year thereafter.
Lee Forlenza. We entered into an amended and restated employment agreement
with Lee Forlenza dated December 31, 2002, for a five (5) year term commencing
as of July 1, 2003, which replaces the employment agreement by and between the
Company and Mr. Forlenza dated October 1, 2001. The agreement automatically
renews for a five (5) year term, unless either party gives notice of non-renewal
prior to the expiration of the initial term. The agreement provides that Mr.
Forlenza will be paid an annual salary of $76,250 commencing July 1, 2003, and
increases each year the agreement is in effect. The agreement also provides that
Mr. Forlenza will be paid a yearly bonus based on his and the Company's
performance, an amount of which is determined by the Board of Directors but
which may not be less than $10,000 for the first five (5) years of the
employment agreement, and an initial bonus of $7,500. If the employment
agreement is renewed, any bonus after the initial term will be paid solely in
the discretion of the Board. The agreement provides for compensation to Mr.
Forlenza if he is terminated prior to the expiration of his employment term, the
exact amount of which varies depending upon the nature of the termination. If
Mr. Forlenza terminates the employment agreement for good reason (as defined in
the agreement, he is entitled to a lump-sum payment equal to the sum of his
salary, as in effect at the time of termination, and an amount equal to his
salary multiplied by the number of years remaining under the agreement or
two-and-one half years, whichever is greater. The agreement also provides for
confidentiality and for non-competition, and for non-solicitation during the
term of the agreement and for one (1) year thereafter.
Margaret Chance. The agreement with Ms. Chance is for a term of five (5)
years dated as of January 1, 2002. The agreement automatically renews for
another five-year term unless either party terminates prior to renewal. The
agreement provides that Ms. Chance will be paid an annual salary of $75,000,
which increases four percent (4%) each year the agreement is in effect. The
agreement also provides that Ms. Chance will be paid a yearly bonus, at the
discretion of Ameritrans but which shall not be less than $8,500 per year, based
on her and the Company's performance. The agreement provides for compensation to
Ms. Chance if she is terminated prior to the expiration of her employment term,
the exact amount of which varies depending upon the nature of the termination.
If, for instance, Ms. Chance terminates the employment agreement for good reason
(as defined in the agreement), she is entitled to a lump-sum payment equal to
the sum of her salary, as in effect at the time of termination, and an amount
equal to her salary multiplied by the number of years remaining under the
agreement or two-and-one-half (2 1/2) years, whichever is greater. The agreement
also provides for confidentiality and for non-competition and non-solicitation
during the term of the agreement and for one year thereafter.
CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as to (i) those persons
who, to our knowledge, owned 5% or more of our outstanding common stock as of
June 17, 2003, (ii) each of our directors and (iii) all of our officers and
directors as a group. Except as set forth below, the address of each person
listed below is the address of Ameritrans.
Percentage of Number of Percentage of
Number of outstanding Shares of Outstanding
Shares of Common Participating Participating
Common Stock Stock Beneficially Preferred Preferred Stock
Name Beneficially Owned Owned Stock Owned Owned
- ---- ------------------ ----- ----------- -----
*Gary C. Granoff 346,025(1) 16.62% 7,000 2.3%
*Ellen M. Walker 57,374(2) 2.79% ** **
*Lee A. Forlenza 52,718(3) 2.60% 1,000 **
Steven Etra 133,617(4) 6.50% ** **
55-25 58th Street
Maspeth, NY
Paul Creditor 7,556(5) ** ** **
747 Third Avenue,
Suite 4C
New York, NY
Allen Kaplan 10,556(6) ** ** **
c/o Executive Charge,
Inc.
1440 39th Street
Brooklyn, NY
John P. Laird 5,656(7) ** ** **
481 Canoe Hill Road
New Canaan, CT
SAI-6
Percentage of Number of Percentage of
Number of outstanding Shares of Outstanding
Shares of Common Participating Participating
Common Stock Stock Beneficially Preferred Preferred Stock
Name Beneficially Owned Owned Stock Owned Owned
- ---- ------------------ ----- ----------- -----
Howard F. Sommer 5,556 ** ** **
c/o New York Community
Investment Co., LLC
120 Broadway
New York, NY
Dan M. Granoff 155,979(8) 7.66% ** **
Children's Hospital
Oakland Research
Institute
747 52nd Street
Oakland, CA
Paul D. Granoff 143,179(9) 7.03% ** **
c/o Rush-Copley
Medical Center
1900 Ogden Avenue
Aurora, IL
Infinity Capital 128,800 5.20% ** **
Partners, L.P.
767 Third Avenue, 16th
Floor
New York, New York
10017
*Margaret Chance 1,700 ** ** **
*Silvia M. Mullens 293 ** 293 **
Officers, Directors 1,049,709(10) 48.56% 7,000 2.3%
and 5% Stockholders as
a group (13 persons)
- ---------------
* Gary C. Granoff, Ellen M. Walker, Lee A. Forlenza, Steven Etra, Margaret
Chance and Silvia Mullens are each "interested persons" with respect to
Ameritrans and Elk, as such term is defined in the 1940 Act.
** Less than 1%.
(1) Excludes 30,533 shares of Common Stock owned directly and indirectly by
Mr. Granoff's wife, as well as 1,000 shares of Participating Preferred
Stock and 1,000 Warrants directly owned by her as to which he disclaims
beneficial ownership. Also excludes 500 shares of Participating Preferred
Stock owned by Dapary Management Corp., a corporation controlled by Mr.
Granoff, and 1,000 shares of Participating Preferred Stock owned by J&H
Associates Ltd. Pts., a partnership whose general partner is GCG
Associates Inc., a corporation controlled by Mr. Granoff. Includes 30,000
options for the purchase of 30,000 shares of Common Stock, which options
are exercisable immediately and expire five years from the date of grant,
and 1,800 Warrants, which are exercisable within 60 days into 1,800 shares
of Common Stock and which expire April 1, 2007. Also includes 16,900
shares owned by The Granoff Family Foundation, a charitable foundation for
which Mr. Granoff and his mother and brother are trustees. Also includes
261 shares held by GCG Associates Inc., a corporation controlled by Mr.
Granoff. Also includes 77,584 shares of common stock, as well as 500
shares of Participating Preferred Stock and 500 Warrants owned by DAPARY
Management Corp., a corporation controlled by Mr. Granoff. Also includes
12,000 shares of Common Stock, as well as 1,000 shares of Participating
Preferred Stock and 1,000 Warrants
SAI-7
owned by J & H Associates Ltd. Pts., a partnership whose general partner
is GCG Associates Inc., a corporation controlled by Mr. Granoff.
(2) Includes (i) 200 shares held by Ms. Walker as custodian for her son; (ii)
22,800 shares held by various trusts of which Ms. Walker is a trustee and
as to which she disclaims beneficial ownership (Mr. Granoff retains a
reversionary interest in 21,000 of such shares), and (iii) 20,000 shares
issuable upon the exercise of ten-year options issued under the 1999
Employee Plan. See "Stock Option Plans."
(3) Includes 700 Warrants, and 17,500 shares of Common Stock issuable upon the
exercise of ten-year options issued to under the 1999 Employee Plan. See
"Stock Option Plans."
(4) Includes (i) 27,000 shares held by Mr. Etra's wife; (ii) 1,500 shares held
by Mr. Etra's son; (iii) 10,000 shares held by SRK Associates LLC, a
limited liability company controlled by Mr. Etra, (iv) 10,000 shares held
by Lance's Property Development Corp. Pension Plan, of which Mr. Etra is a
trustee and (v) 17,500 shares issuable upon the exercise of ten-year
options issued under the 1999 Employee Plan. See "Stock Option Plans."
(5) Includes 5,556 shares issuable upon exercise of ten year options issued
under the Director Plan. See "Stock Options Plans."
(6) Includes 5,556 shares issuable upon exercise of ten year options issued
under the Director Plan. See "Stock Options Plans."
(7) Includes 5,556 shares issuable upon exercise of ten year options issued
under the Director Plan. See "Stock Option Plans."
(8) Includes 5,556 shares issuable upon exercise of ten-year options issued
under the Director Plan. See "Stock Option Plans."
(9) Includes (i) 10,900 shares owned by a charitable foundation, of which
Jeannette Granoff, Gary C. Granoff and Dr. Dan M. Granoff are the
trustees, and (ii) 2,800 shares held in an IRA Rollover Account for the
benefit of Dr. Granoff.
(10) Includes 40,049 shares held by Dr. Paul Granoff directly, 77,630 held by
Granoff Family Partners Ltd., of which Dr. Granoff is a general partner,
and 25,500 shares held by the Granoff Pediatric Associates Profit Sharing
Plan. Excludes 14,127 shares held by Dr. Granoff's wife, of which shares
he disclaims beneficial ownership.
(11) Includes 4,000 shares issuable upon the exercise of 4,000 Warrants,
100,000 shares issuable upon the exercise of 30,000 five-year and 70,000
ten-year options issued under the 1999 Employee Plan, and 22,224 shares
issuable upon the exercise of ten-year options issued under the Director
Plan. See "Stock Option Plans."
Except pursuant to applicable community property laws or as described
above, each person listed in the table above has sole voting and investment
power, and is both the owner of record and the beneficial owner of his or her
respective shares.
Except as otherwise indicated above, the persons listed in the above table
have voting and investment power with respect to their respective shares.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the federal income tax
principles applicable to Ameritrans, based on the currently existing provisions
of the Internal Revenue Code and the regulations thereunder. This summary does
not purport to be a complete description of the tax considerations applicable to
Ameritrans or to the holders of its Common
SAI-8
Stock, Participating Preferred Stock and Warrants. These principles, in general,
also apply to Elk, but the sole direct stockholder of Elk is Ameritrans.
Ameritrans has elected to be treated as a "regulated investment company"
(a "RIC") under Section 851 of the Internal Revenue Code, and Elk has elected to
be treated as an RIC since 1984. A regulated investment company may deduct, for
federal income tax purposes, most dividends paid to stockholders, thereby
avoiding federal income taxation at the corporate level on stockholder
dividends. In addition, because Elk currently qualifies for treatment as an RIC,
Ameritrans anticipates that the dividends it receives from Elk will not be
subject to corporate taxation at the level of Elk.
TAXATION OF REGULATED INVESTMENT COMPANIES
In order to qualify as an RIC for a given fiscal year, a company must
generally meet each of the following conditions for that fiscal year:
a) The company must be registered as an investment company under the
1940 Act at all times during the year.
b) At least 90% of the company's gross income for the year must be
derived from interest, gains on the sale or other disposition of stock or other
securities, dividends and payment with respect to securities loans.
c) At the close of each quarter, at least 50% of the value of the
company's total assets must be represented by cash, cash items (including
receivables), securities of other RICs and securities of other issuers, except
that the investment in a single issuer of securities may not exceed 5% of the
value of the RIC's assets, or 10% of the outstanding voting securities of the
issuer.
d) At the close of each quarter, and with the exception of
government securities or securities of other RICs, no more than 25% of the value
of an RIC's assets may be made up of investments in the securities of a single
issuer or in the securities of two or more issuers controlled by the RIC and
engaged in the same or a related trade or business. However, if a non-RIC entity
controlled by the RIC subsequently sustains internally generated growth (as
opposed to growth via acquisitions), the diversification requirement will not be
violated even if the non-RIC subsidiary represents in excess of 25% of the RIC's
assets.
e) The company must distribute as dividends at least 90% of its
investment company taxable income (as defined in Section 852 of the Internal
Revenue Code), as well as 90% of the excess of its tax-exempt income over
certain disallowed tax-exempt interest deductions. This treatment substantially
eliminates the "double taxation" (i.e., taxation at both the corporate and
stockholder levels) that generally results from the use of corporate investment
vehicles. An RIC is, however, generally subject to federal income tax at regular
corporate rates on undistributed investment company taxable income.
In order to avoid the imposition of a non-deductible 4% excise tax on its
undistributed income, an RIC is required, under Section 4982 of the Internal
Revenue Code, to distribute within each calendar year at least 98% of its
ordinary income for such calendar year and 98% of its capital gain net income
(reduced by the RIC's net ordinary loss for the calendar year, but not below its
net capital gain) for the one-year period ending on October 31 of such calendar
year, plus any remaining undistributed income and gain from prior years.
The tax benefits available to a qualified RIC are prospective, commencing
with the fiscal year in which all the conditions listed above are met, and would
not permit Ameritrans to avoid income tax at the corporate level on income
earned during prior taxable years. If Ameritrans fails to qualify as an RIC for
a given fiscal year, Ameritrans will not be entitled to a federal income tax
deduction for dividends distributed, and amounts distributed as stockholder
dividends by Ameritrans will therefore be subject to federal income tax at both
the corporate level and the individual level.
SAI-9
Dividends distributed by Elk to Ameritrans will constitute ordinary income
to Ameritrans to the extent derived from non-capital gain income of Elk, and
will ordinarily constitute capital gain income to Ameritrans to the extent
derived from long-term capital gains of Elk. However, since Ameritrans is also
an RIC, Ameritrans will, in general, not be subject to a corporate level tax on
its income to the extent that it makes distributions to its stockholders. If Elk
does not qualify as an RIC for any reason in any fiscal year, it will not be
entitled to a federal income tax deduction for dividends distributed, and will
instead be liable to pay corporate level tax on its earnings. Further, if Elk
does not qualify as an RIC, such failure will cause Ameritrans to fail to
qualify for RIC status as well, as long as Elk stock held by Ameritrans
represents more than 25% of Ameritrans' assets. In such a case, Ameritrans may
be taxed on the dividends received from Elk, subject to the deduction for
corporate dividends received. The deduction for dividends received by
corporations depend on the percentage of recipients ownership of the corporation
paying the dividend. Under Section 243 of the Internal Revenue Code a 70%
deduction is allowed if the receiving corporation owns less than 20% of the
stock, by vote and value, of the paying corporation, 80% if at least 20% and
less than 80% is owned, and 100% if the ownership percentage is over 80% and the
dividend is a "Qualifying Dividend" paid between member of the same Affiliated
Group. Thus, if Elk fails to qualify as an RIC for any reason, its earnings may
be taxed at three levels, to Elk, in part to Ameritrans, and finally, when they
are distributed by Ameritrans, to our stockholders.
As long as Ameritrans qualifies as an RIC, dividends distributed by
Ameritrans to its stockholders out of current or accumulated earnings and
profits constitute ordinary income to such stockholders to the extent derived
from ordinary income and short-term capital gains of Ameritrans (such as
interest from loans by Ameritrans or dividends received from Elk). Any long-term
capital gain dividends distributed by Ameritrans would constitute capital gain
income to Ameritrans stockholders. To the extent Ameritrans makes distributions
in excess of current and accumulated earnings and profits, these distributions
are treated first as a tax-free return of capital to the stockholder, reducing
the tax basis of the stockholder's stock by the amount of such distribution, but
not below zero, with distributions in excess of the stockholder's basis taxable
as capital gains if the stock is held as a capital asset.
TAXATION OF SBICS
As a result of Elk's status as a licensed SBIC under the 1958 Act, Elk and
its stockholders qualify for the following tax benefits:
(i) Under Section 243 of the Internal Revenue Code, Elk may deduct 100% of
the dividends received by it from domestic corporations in which it has made
equity investments, regardless of whether such corporations are subsidiaries of
Elk (in contrast to the generally applicable 70% deduction under the Code).
Because Elk generally makes long-term loans rather than equity investments, this
potential benefit is not likely to be of practical significance to Elk or its
stockholder.
(ii) Under Section 1243 of the Internal Revenue Code, losses sustained on
Elk's investments in the convertible debentures, or stock derived from
convertible debentures, of Small Business Concerns are treated as ordinary
losses rather than capital losses to Elk. Because Elk does not presently intend
to purchase convertible debentures, however, this potential benefit is not
likely to be of practical significance to Elk or its stockholder.
STATE AND OTHER TAXES
The foregoing discussion relates only to federal income tax matters.
Ameritrans and Elk are also subject to state and local taxation. The state,
local and foreign tax treatment may not conform to the federal tax treatment
discussed above. Stockholders should consult with their own tax advisors with
respect to the state and local tax considerations pertaining to Ameritrans and
Elk.
SAI-10
PART C -- OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
1. Financial Statements.
The following financial statements are included in the Prospectus on the
identified pages.
PAGE
----
REPORT OF MARCUM & KLIEGMAN LLP,
INDEPENDENT AUDITORS' REPORT ........................................... F-2
Consolidated Balance Sheets as of June 30, 2001, June 30, 2000 and
March 31, 2003 (unaudited) ............................................. F-3,4
Consolidated Statements of Income for the Years Ended June 30, 2002, June 30,
2001 and June 30, 2000 and for the Nine Months Ended
March 31, 2003 and 2002 (unaudited) .................................... F-5
Consolidated Statements of Comprehensive Income for the years ended June 30,
2002, 2001 and 2000 and for the Nine Months Ended
March 31, 2003 and 2002 (unaudited) .................................... F-6
Consolidated Statements of Stockholders' Equity for the Years Ended June 30,
2002, June 30, 2001 and June 30, 2000 and for the Nine Months
Ended March 31, 2003 (unaudited) ....................................... F-7
Consolidated Statements of Cash Flows for the Years Ended June 30, 2002, June
30, 2001 and June 30, 2000, and for the Nine Months Ended
March 31, 2003 and 2002 (unaudited) .................................... F-8
Schedule of Loans at June 30, 2002 .......................................... F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .................................. F-10-23
2. Exhibits
a. Certificate of Incorporation(1)
b. By-laws(1)
d.1 Certificate for shares of Participating Preferred Stock, was
previously filed.
d.2 Certificate for Warrants, was previously filed.
d.3 Certificate of Designations for the Participating Preferred Stock,
was previously filed.
d.4 Warrant Agreement.
d.5 Underwriters' Unit Purchase Option, was previously filed.
d.6 Certificate for the Units, was previously filed.
d.7 Certificate for shares of Common Stock, was previously filed.
f.1 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%, was
previously filed.
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%.
C-1
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%.
f.2 Security Agreement between Elk and the SBA, dated September 9, 1993,
was previously filed.
f.3 Custodian Agreement, Intercreditor Agreement and amendments thereto
-- See Exhibits j.1, k.2, k.3, and k.4, below.
h.1 Underwriting Agreement dated April 18, 2002, was previously filed.
h.2 Agreement among Underwriters dated April 18, 2003.
h.3 Selected Dealer Agreement dated April 18, 2002, was previously
filed.
i.1 1999 Employee Stock Option Plan(2)
i.2 Non-Employee Director Stock Option Plan, was previously filed.
j.1 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"), was previously filed.
k.1 Agreements between Elk and the SBA.
a. Agreement dated September 9, 1993, was previously filed.
b. Agreement dated February 7, 1997, was previously filed.
k.2 Intercreditor Agreement among Elk, Leumi, IDB, Hapoalim, Extebank
and the SBA, dated September 9,1993 (the "Intercreditor Agreement"),
was previously filed.
k.3 Amendments to the Custodian and Intercreditor Agreements.
a. Amendment removing Hapoalim and Extebank and adding European
American Bank ("EAB"), dated September 28, 1994, was
previously filed.
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.
k.4 Bank Intercreditor Agreement among Elk, Leumi, IDB, Hapoalim and
Extebank, dated September 9,1993 (the "Bank Intercreditor
Agreement"), was previously filed.
k.5 Amendments to the Bank Intercreditor Agreement.
a. Amendment removing Hapoalim and Extebank and adding European
American Bank ("EAB"), dated September 28, 1994, was
previously filed.
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.
k.6 Letter Agreement renewing line of credit for Elk with IDB Bank dated
April 30, 2003.(4)
k.7 Promissory Note dated March 3, 2003 between Elk and Bank Leumi and
Letter Agreement dated March 11, 2003 between aforementioned
parties.(4)
k.8 Master Note dated October 4, 1999 between Ameritrans and European
American Bank.(3)
k.9 Form of indemnity agreement between Ameritrans and each of its
directors and officers.(1)
k.10 Amended and Restated Employment Agreement dated as of December 31,
2002 between Ameritrans and Gary Granoff.(5)
k.11 Amended and Restated Consulting Agreement dated as of December 31,
2002 between Ameritrans and Gary Granoff.(5)
k.12 Amended and Restated Employment Agreement dated as of December 31,
2002 between Ameritrans and Lee Forlenza.(5)
k.13 Employment Agreement dated as of October 1, 2001 between Ameritrans
and Ellen Walker.(7)
k.14 Employment Agreement dated as of January 1, 2002 between Ameritrans
and Silvia Mullens.(6)
k.15 Employment Agreement dated as of January 1, 2002 between Ameritrans
and Margaret Chance.(6)
k.16 Line of Credit Agreement dated January 3, 2002 between Elk
Associates Funding Corporation and Citibank, N.A. was previously
filed.
l. Opinion and consent of Stursberg & Veith.*
n.1 Consent of Marcum & Kliegman LLP.
r. Power of attorney authorizing Gary C. Granoff to execute and file
Registration Statement and amendments -- see signature page of
Registration Statement.
- --------------
* To be filed by amendment.
(1) Incorporated by reference from the Registrant's Registration Statement on
Form N-14 (File No. 333-63951), initially filed September 22, 1998.
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(2) Incorporated by reference from the first amendment to the Registrant's
Registration Statement on Form N-14 (File No. 333-63951), filed October
20, 1999.
(3) Incorporated by reference from the Registrant's 10-Q (File No. 811-08847)
filed February 14, 2001.
(4) Incorporated by reference from the Registrant's 10-Q (File No. 811-08847)
filed May 15, 2003.
(5) Incorporated by reference from the Registrant's 10-Q (File No. 811-08847)
filed February 14, 2003.
(6) Incorporated by reference from the Registrant's 10-Q (File No. 811-08847)
filed February 14, 2002.
(7) Incorporated by reference from the Registrant's 10-Q (File No. 811-08847)
filed November 14, 2001.
ITEM 25. MARKETING ARRANGEMENTS
See Section 3 of the Underwriting Agreement, which is attached as Exhibit
h.1. hereto, and Section ____ of the Agreement Among Underwriters, which is
attached as Exhibit h.2. hereof.
In connection with the Offering, the Underwriters may over-allot or effect
transactions that stabilize or maintain the market price of the Common Stock at
a level that might otherwise prevail in the open market. Such stabilizing, if
commenced, may be discontinued at any time.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the Offering:
Blue Sky fees and expenses............................ $ 2,500
Accounting fees and expenses.......................... 50,000
Legal fees and expenses............................... 110,000
Printing and engraving fees........................... 10,000
Miscellaneous fees and expenses....................... 15,000
--------
Total....................................... $187,500
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Elk Associates Funding Corporation, a New York corporation, is 100% owned
by the Registrant.
Elk Capital Corporation, a New York corporation, is 100% owned by the
Registrant.
EAF Holding Corporation, a New York corporation, is 100% owned by Elk
Associates Funding Corporation.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF
NAME OF CLASS RECORD HOLDERS
Common Stock, par value $.0001 per share........... 197
Preferred Stock, par value $.01 per share.......... 3
Warrants........................................... 3
ITEM 29. INDEMNIFICATION.
The Certificate of Incorporation of Ameritrans Capital Corporation
("Ameritrans") includes a provision (the "Liability Provision"), authorized
under Section 102(b)(7) of the Delaware General Corporation Law, which
eliminates, to the extent permitted by the Delaware General Corporation Law and
the Investment Company Act of 1940 (the "1940 Act"), the personal liability of a
director to Ameritrans or its stockholders for monetary damages resulting from
the breach of his fiduciary duty as a director. Under the Delaware General
Corporation Law, this provision may not be construed to eliminate or limit a
director's liability for any of the following: breaches of the director's duty
of loyalty to the corporation or its stockholders; acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
C-3
payment of a dividend or approval of a stock repurchase which is unlawful under
Section 174 of the Delaware General Corporation Law; and transactions from which
the director derives an improper personal benefit. In addition, under the 1940
Act, this provision may not be construed to protect a director against liability
to the corporation or its stockholders for acts or omissions involving willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
The Liability Provision precludes actions for monetary damages against
directors of Ameritrans only with respect to certain violations of a director's
duty of care. Under the Delaware General Corporation Law, absent this provision,
directors could be held liable for negligence in the performance of their duty
of care. The Liability Provision absolves directors of Ameritrans of monetary
liability to Ameritrans and its stockholders for negligence in exercising their
business judgment. A stockholder can prosecute an action against a director for
monetary damages only if he can show a breach of the duty of loyalty, gross
negligence or reckless disregard of his duties, a failure to act in good faith,
intentional misconduct or willful misfeasance, a knowing violation of the law,
an unlawful dividend or stock repurchase, or an improper personal benefit. The
Liability Provision does not affect the ability of Ameritrans or its
stockholders to seek equitable remedies (such as an injunction or rescission)
against a director for breach of his fiduciary duty and does not limit the
liability of directors under other laws, such as the federal securities laws.
The Liability Provision also does not limit the liability of officers or
employees of Ameritrans or any director acting in his capacity as an officer or
employee of Ameritrans.
In addition, Ameritrans' By-Laws also includes a provision (the
"Indemnification Provision") that requires Ameritrans to indemnify its directors
and officers, to the maximum extent permitted by the Delaware General
Corporation Law and by the 1940 Act, against liabilities and damages incurred in
their capacity as directors or officers of Ameritrans. Under the Delaware
General Corporation Law, a director or officer of a corporation (i) shall be
indemnified by the corporation for all expenses of litigation or other legal
proceedings brought against him by virtue of his position as a director or
officer to the extent he is successful, on the merits or otherwise, in such
litigation or proceeding, (ii) may be indemnified by the corporation for the
expenses, judgments, fines, and amounts paid in settlement of such litigation or
proceedings (other than an action by or in the right of a corporation, which is
hereinafter referred to as a "derivative action"), even if he is not successful,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation (and, in the case of a criminal
proceeding, had no reason to believe that his conduct was unlawful), (iii) may
be indemnified by the corporation for expenses of a derivative action, even if
he is not successful, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
provided that indemnification may not be made in the case of a derivative action
if the director or officer is adjudged to be liable to the corporation, unless a
court determines that, despite such adjudication but in view of all the
circumstances, he is entitled to indemnification of such expenses, only upon the
determination, by (a) a majority of directors who are not a party to the action
(even though less than a quorum), (b) by a committee of such directors
designated by a majority of such disinterested directors, (c) under certain
circumstances, independent legal counsel in a written opinion, or (d) the
stockholders, that indemnification is proper because the applicable standard of
conduct has been met. Expenses incurred by a director or officer in defending an
action may be advanced by the corporation prior to the final disposition of such
action upon receipt of an undertaking by such director or officer to repay such
expenses if it is ultimately determined that he is not entitled to be
indemnified in connection with the proceeding to which the expenses relate.
These provisions of the Delaware General Corporation Law, by their terms, are
not exclusive of any other rights to which those seeking indemnification or
advances of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise.
The 1940 Act prohibits the inclusion in Ameritrans' Certificate of
Incorporation or certain other organizational instruments of Ameritrans of a
provision which purports to protect any director or officer of Ameritrans
against liability to Ameritrans or its stockholders for willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office. Accordingly, the Indemnification Provision specifically
provides that indemnification shall only be made to the extent permitted by the
1940 Act.
Ameritrans has entered into an indemnity agreement (the "Indemnity
Agreement") with each of its directors and officers. The Indemnity Agreement
clarifies or modifies the indemnification provisions of the Delaware General
Corporation Law as follows: (i) the Indemnity Agreement establishes the
presumption that the director or officer has met the applicable standard of
conduct required for indemnification and provides that prompt indemnification
shall be made unless a
C-4
determination is made by a majority of Ameritrans disinterested directors,
independent counsel, or a majority of Ameritrans' stockholders that the director
or officer has not met the applicable standard of conduct; (ii) if the
disinterested directors determine that the director or officer has not met the
applicable standard of conduct, the Indemnity Agreement permits the director or
officer to petition a court for an independent determination of whether such
officer or director is entitled to indemnification under the Indemnity
Agreement; (iii) the Indemnity Agreement provides that expenses shall be
promptly advanced to a director or officer upon receipt of an undertaking by him
to repay amounts so advanced if it is ultimately determined that indemnification
of such expenses is not permissible, provided that either (a) such director or
officer shall have provided appropriate security for such undertaking, (b)
Ameritrans shall be insured against losses arising from any such advance
payments, or (c) either a majority of the disinterested directors (even though
less than a quorum), a committee of such directors designated by such
disinterested directors, or independent legal counsel in a written opinion shall
have determined, based upon a review of readily available facts, that there is
reason to believe that such director or officer will be found entitled to
indemnification; (iv) the Indemnity Agreement specifically provides that the
indemnification provisions applicable to a derivative suit cover amounts paid in
settlement; and (v) the Indemnity Agreement specifically permits partial
indemnification to be made in the event that the director or officer is not
entitled to full indemnification.
Ameritrans may in the future elect to purchase directors' and officers'
liability insurance, as is permitted by the Delaware General Corporation Law.
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "1933 Act") may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions or,
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
Not applicable.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Registrant maintains at its principal office physical possession of
each account, book or other document required to be maintained by Section 31(a)
of the 1940 Act, as applicable, pursuant to Section 64 of the 1940 Act.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS.
1. The Registrant hereby undertakes:
(a) to suspend the Offering until the Prospectus is amended if (1)
subsequent to the effective date of this Registration Statement, the net
asset value declines more than ten percent from its net asset value as of
the effective date of the registration statement or (2) the net asset
value increases to an amount greater than its net proceeds as stated in
the Prospectus.
C-5
(b) that, for the purpose of determining any liability under the
1933 Act, the information omitted from the form of Prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Registrant under Rule
497(h) under the 1933 Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(c) for the purpose of determining any liability under the 1933 Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
2. The undersigned registrant hereby undertakes:
(1) To file during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in the volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of the
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change in such information in the registration statement.
3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the provisions of the Certificate of Incorporation and
By-Laws, or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication for such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement has been signed on its behalf by the
undersigned thereunto duly authorized, in the City of New York and State of New
York on the 24 day of June, 2003.
AMERITRANS CAPITAL CORPORATION
By: /s/ GARY C. GRANOFF
-----------------------------------
Gary C. Granoff, President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
Know all men by these presents, that each of the undersigned constitutes
and appoints Gary C. Granoff as his true and lawful attorney-in-fact and agent,
with full power of substitution, for him, and in his name, place, and stead, in
any and all capacities, to sign any and all amendments, including post-effective
amendments to this registration statement or any registration statement relating
to the offering to which this registration statement relates that is effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933 and any
post-effective amendments thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in an and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Signature Title Date
- --------- ----- ----
/s/ GARY C. GRANOFF President and Chairman of the Board of Directors, June 24, 2003
- ---------------------------------- Financial and Accounting Officer
Gary C. Granoff
/s/ ELLEN M. WALKER Executive Vice President, General Counsel, and June 24, 2003
- ---------------------------------- Director
Ellen M. Walker
/s/ LEE A. FORLENZA Senior Vice President and Director June 24, 2003
- ----------------------------------
Lee A. Forlenza
/s/ STEVEN ETRA Vice President and Director June 24, 2003
- ----------------------------------
Steven Etra
/s/ PAUL CREDITOR Director June 24, 2003
- ----------------------------------
Paul Creditor
/s/ ALLEN KAPLAN Director June 24, 2003
- ----------------------------------
Allen Kaplan
/s/ HOWARD F. SOMMER Director June 24, 2003
- ----------------------------------
Howard F. Sommer
/s/ JOHN R. LAIRD Director June 24, 2003
- ----------------------------------
John R. Laird
/s/ WESLEY FINCH Director June 24, 2003
- ----------------------------------
Wesley Finch
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EXHIBIT INDEX
Exhibit
Number Exhibit
------ -------
a. Certificate of Incorporation(1)
b. By-laws(1)
d.1 Certificate for shares of Participating Preferred Stock, was
previously filed.
d.2 Certificate for warrants, was previously filed.
d.3 Certificate of Designations for the Participating Preferred Stock,
was previously filed.
d.4 Warrant Agreement.
d.5 Underwriters' Unit Purchase Option, was previously filed.
d.6 Certificate for the Units, was previously filed.
d.7 Certificate for shares of common stock, was previously filed.
f.1 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%, was
previously filed.
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%.
f.2 Security Agreement between Elk and the SBA, dated September 9, 1993,
was previously filed.
f.3 Custodian Agreement, Intercreditor Agreement and amendments thereto
-- See Exhibits j.1, k.2, k.3, and k.4, below.
h.1 Underwriting Agreement dated April 18, 2002, was previously filed.
h.2 Agreement among Underwriters dated April 18, 2003.
h.3 Selected Dealer Agreement dated April 18, 2003, was previously
filed.
i.1 1999 Employee Stock Option Plan(2)
i.2 Non-Employee Director Stock Option Plan, was previously filed.
j.1 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"), was previously filed.
k.1 Agreements between Elk and the SBA.
a. Agreement dated September 9, 1993, was previously filed.
b. Agreement dated February 7, 1997, was previously filed.
k.2 Intercreditor Agreement among Elk, Leumi, IDB, Hapoalim, Extebank
and the SBA, dated September 9,1993 (the "Intercreditor Agreement"),
was previously filed.
k.3 Amendments to the Custodian and Intercreditor Agreements.
a. Amendment removing Hapoalim and Extebank and adding European
American Bank ("EAB"), dated September 28, 1994, was
previously filed.
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.
k.4 Bank Intercreditor Agreement among Elk, Leumi, IDB, Hapoalim and
Extebank, dated September 9,1993 (the "Bank Intercreditor
Agreement"), was previously filed.
k.5 Amendments to the Bank Intercreditor Agreement.
a. Amendment removing Hapoalim and Extebank and adding European
American Bank ("EAB"), dated September 28, 1994, was
previously filed.
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.
k.6 Letter Agreement renewing line of credit for Elk with IDB Bank dated
April 30, 2003.(4)
k.7 Promissory Note dated March 3, 2003 between Elk and Bank Leumi and
Letter Agreement dated March 11, 2003 between aforementioned
parties.(4)
k.8 Master Note dated October 4, 1999 between Ameritrans and European
American Bank.(3)
k.9 Form of indemnity agreement between Ameritrans and each of its
directors and officers.(1)
k.10 Amended and Restated Employment Agreement dated as of December 31,
2002 between Ameritrans and Gary Granoff.(5)
k.11 Amended and Restated Consulting Agreement dated as of December 31,
2002 between Ameritrans and Gary Granoff.(5)
k.12 Amended and Restated Employment Agreement dated as of December 31,
2002 between Ameritrans and Lee Forlenza.
k.13 Employment Agreement dated as of October 1, 2001 between Ameritrans
and Ellen Walker.(7)
k.14 Employment Agreement dated as of January 1, 2002 between Ameritrans
and Silvia Mullens.(6)
k.15 Employment Agreement dated as of January 1, 2002 between Ameritrans
and Margaret Chance.(6)
k.16 Line of Credit Agreement dated January 3, 2002 between Elk
Associates Funding Corporation and Citibank, N.A. was previously
filed.
l. Opinion and consent of Stursberg & Veith.*
n.1 Consent of Marcum & Kliegman LLP.
r. Power of attorney authorizing Gary C. Granoff to execute and file
Registration Statement and amendments -- see signature page of
Registration Statement.
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* To be filed by amendment.
(1) Incorporated by reference from the Registrant's Registration Statement on
Form N-14 (File No. 333-63951), initially filed September 22, 1998.
(2) Incorporated by reference from the first amendment to the Registrant's
Registration Statement on Form N-14 (File No. 333-63951), filed October
20, 1999.
(3) Incorporated by reference from the Registrant's 10-Q (File No. 811-08847)
filed February 14, 2001.
(4) Incorporated by reference from the Registrant's 10-Q (File No. 811-08847)
filed May 15, 2003.
(5) Incorporated by reference from the Registrant's 10-Q (File No. 811-08847)
filed February 14, 2003.
(6) Incorporated by reference from the Registrant's 10-Q (File No. 811-08847)
filed February 14, 2002.
(7) Incorporated by reference from the Registrant's 10-Q (File No. 811-08847)
filed November 14, 2001.
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