U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Quarterly Period
Ended December 31, 2004
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from ____________ to _______________
Commission File Number 0-22153
AMERITRANS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-2102424
(State of incorporation) (I.R.S. Employer
Identification No.)
747 Third Avenue, New York, New York 10017
(Address of Registrant's principal executive office) (Zip Code)
(800) 214-1047
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No
|_|
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes |_| No |X|
The number of shares of Common Stock, par value $.0001 per share,
outstanding as of February 11, 2005: 2,035,600
AMERITRANS CAPITAL CORPORATION
FORM 10-Q
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31,
2004 (unaudited) and
June 30, 2004 ......................... 1
Consolidated Statements of Operations --
For the
Three Months and Six Months
Ended December 31, 2004 and 2003
(unaudited)............................ 3
Consolidated Statements of Cash Flows --
For the
Six Months Ended December 31, 2004
and 2003 (unaudited) .................. 4
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and
Results of Operations................ 11
Item 3. Quantitative and Qualitative Disclosure
about Market Risk
....................................... 16
Item 4. Controls and Procedures .................. 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......... 18
Signatures ........................................ 19
(All other items on this page are inapplicable.)
-ii-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2004 (Unaudited) and June 30, 2004
ASSETS
December 31, 2004 June 30, 2004
Loans receivable $52,584,197 $49,900,989
Less: unrealized
depreciation on
loans receivable (723,289) (509,770)
Loans receivable, net 51,860,908 49,391,219
Cash and cash equivalents 489,074 416,600
Accrued interest receivable, net
of unrealized depreciation of
$92,000 and $30,500, respectively 742,205 969,912
Assets acquired in satisfaction
of loans 730,655 1,421,723
Receivables from debtors on sales of
assets acquired in satisfaction
of loans 186,333 422,158
Equity securities 1,090,857 1,038,617
Furniture, equipment and leasehold
improvements, net 392,385 439,262
Medallions 2,382,201 2,382,201
Prepaid expenses and other assets 620,135 610,214
TOTAL ASSETS $58,494,753 $57,091,906
The accompanying notes are an integral part of these financial
statements.
.
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2004 (Unaudited) and June 30, 2004
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 2004 June 30, 2004
LIABILITIES
Debentures payable to SBA $12,000,000 $12,000,000
Notes payable, banks 30,645,652 28,908,652
Accrued expenses and other
liabilities 599,739 578,790
Accrued interest payable 275,698 271,630
Dividends payable 84,375 84,375
TOTAL LIABILITIES 43,605,464 41,843,447
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock 500,000
shares authorized, none issued
or outstanding - -
9 3/8% cumulative participating
callable preferred stock $.01 par
value, $12.00 face value, 500,000
shares authorized; 300,000 shares
issued and outstanding 3,600,000 3,600,000
Common stock, $.0001 par value:
5,000,000 shares authorized;
2,045,600 shares issued,
2,035,600 outstanding 205 205
Additional paid-in-capital 13,869,545 13,869,545
Accumulated deficit (2,313,686) (1,902,408)
Accumulated other
comprehensive loss (196,775) (248,883)
14,959,289 15,318,459
Less: Treasury stock, at cost,
10,000 shares of common stock (70,000) (70,000)
TOTAL STOCKHOLDERS' EQUITY 14,889,289 15,248,459
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $58,494,753 $57,091,906
The accompanying notes are an integral part of these financial
statements.
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended December 31, 2004 and 2003
(Unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
INVESTMENT INCOME
Interest on loans receivable $1,154,708 $1,331,027 $2,283,765 $2,721,202
Fees and other income 88,687 57,222 189,227 108,446
Leasing income 73,796 23,712 125,333 37,548
TOTAL INVESTMENT INCOME 1,317,191 1,411,961 2,598,325 2,867,196
OPERATING EXPENSES
Interest 441,000 342,679 823,156 715,432
Salaries and employee benefits 293,081 241,019 555,745 487,566
Occupancy costs 46,434 48,178 95,617 98,241
Professional fees 195,734 241,999 331,298 354,882
Other administrative expenses 297,485 315,423 542,953 606,509
Loss on assets acquired in
satisfaction of loans, net 22,154 6,168 32,547 36,069
Foreclosure expense 9,194 53,902 14,194 263,532
Write off and depreciation
on interest and loans
receivable 288,541 355,662 390,059 611,554
TOTAL OPERATING EXPENSES 1,593,623 1,605,030 2,785,569 3,173,785
OPERATING LOSS (276,432) (193,069) (187,244) (306,589)
OTHER INCOME (EXPENSE)
(Loss) gain on sale of
securities (50,000) - (50,000) 5,665
Gain on sale of asset acquired 1,884 - 1,884
Equity in loss of investee (2,010) - (4,021) -
TOTAL OTHER INCOME (EXPENSE) (50,126) - (52,137) 5,665
LOSS BEFORE PROVISION
FOR INCOME TAXES (326,558) (193,069) (239,381) (300,924)
PROVISION FOR INCOME TAXES 682 747 3,147 11,290
NET LOSS $(327,240) $(193,816) $(242,528) $(312,214)
DIVIDENDS ON PREFERRED STOCK $ (84,375) $ (84,375) $(168,750) $(168,750)
NET LOSS AVAILABLE TO
COMMON SHAREHOLDERS $(411,615) $(278,191) $(411,278) $(480,964)
WEIGHTED AVERAGE SHARES OUTSTANDING
- Basic 2,035,600 2,035,600 2,035,600 2,035,600
- Diluted 2,035,600 2,035,600 2,035,600 2,035,600
NET LOSS PER COMMON SHARE
- Basic $ (0.20) $ (0.14) $ (0.20) $ (0.24)
- Diluted $ (0.20) $ (0.14) $ (0.20) $ (0.24)
The accompanying notes are an integral part of these financial
statements
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended December 31, 2004 and 2003 (Unaudited)
December 31, December 31,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (242,528) $ (312,214)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 74,601 31,410
Loss (gain) on sale of equity
securities 50,000 (5,665)
Gain on sale of asset acquired (1,884) -
Equity in loss of investee 4,021 -
Change in operating assets and liabilities:
Changes in unrealized depreciation on
loans receivable and accrued interest
receivable 275,019 (246,500)
Accrued interest receivable 166,206 510,687
Prepaid expenses and other assets (37,644) (63,603)
Accrued expenses and other liabilities 20,949 55,541
Accrued interest payable 4,068 (27,445)
TOTAL ADJUSTMENTS 555,336 254,425
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 312,808 (57,789)
CASH FLOWS FROM INVESTING ACTIVITIES
Loans receivable (2,683,208) 409,967
Assets acquired in satisfaction of loans 538,319 288,000
Receivables from debtors on sales of
assets acquired in satisfaction
of loans 390,458 3,788
Proceeds from sale of equity securities - 25,959
Purchases of equity securities (54,153) (150,600)
Sale of automobiles - 60,125
Capital expenditures - (364,733)
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (1,808,584) 272,506
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable, banks 17,493,961 400,000
Repayments of notes payable, banks (15,756,961) (1,750,098)
Proceeds from debentures payable to SBA - 5,000,000
Repayment of debentures payable to SBA - (3,720,000)
Dividends paid (168,750) (168,750)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,568,250 (238,848)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 72,474 (24,131)
CASH AND CASH EQUIVALENTS - Beginning 416,600 498,669
CASH AND CASH EQUIVALENTS - Ending $489,074 $474,538
The accompanying notes are an integral part of these financial
statements.
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Six Months Ended December 31, 2004 and 2003 (Unaudited)
December 31, 2004 December 31, 2003
SUPPLEMENTAL DISCLOSURES OF
NON-CASH INVESTING ACTIVITIES:
Unrealized gain (loss) on
equity securities arising
during the period $ 7,108 $ (16,332)
Reclassification adjustment
for loss (gain) included in
net loss $ 45,000 $ (5,665)
Reclassification of assets
acquired to receivables
from debtors on
sales of assets acquired $ (154,633) $ -
Acquisition of medallions
through foreclosure of loans
receivable $ - $(1,418,901)
The accompanying notes are an integral part of these financial
statements.
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Organization and Summary of Significant Accounting
Policies
Financial Statements
The consolidated balance sheet of Ameritrans Capital Corporation
("Ameritrans" or the "Company") as of December 31, 2004, and the related
statements of operations and cash flows for the three months and six
months ended December 31, 2004 and 2003 have been prepared by the
Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "Commission"). Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant
to such rules and regulations. In the opinion of management, the
accompanying consolidated financial statements include all adjustments
(consisting of normal, recurring adjustments) necessary to summarize
fairly the Company's financial position and results of operations.
The results of operations for the six months ended December 31, 2004
are not necessarily indicative of the results of operations for the full
year or any other interim period. These financial statements should be
read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2004 as filed with the Commission.
Organization and Principal Business Activity
Ameritrans, a Delaware corporation, is a specialty finance company that
through its subsidiary, Elk, primarily makes loans to taxi owners to
finance the acquisition and operation of taxi medallions and related
assets, and to other small businesses in the New York City, Chicago,
Miami, and Boston markets. Ameritrans is a regulated investment company
under the Internal Revenue Code.
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 is also registered as an investment company under the Investment
Company Act of 1940 to make business loans.
Basis of Consolidation
The consolidated financial statements include the accounts of
Ameritrans, Elk, and Elk's wholly owned subsidiaries, EAF Holding
Corporation ("EAF"), EAF Enterprises LLC, Medallion Auto Management LLC,
EAF Leasing LLC, EAF Leasing II LLC and EAF Leasing III LLC,
(collectively referred to as the "Company"). All significant inter-
company transactions have been eliminated in consolidation.
EAF, which was formed in June 1992 and began operations in December
1993, owns and operates certain real estate assets acquired in
satisfaction of defaulted loans made by Elk.
EAF Enterprises LLC, which was formed in June 2003 and began operations
in July 2003, owns, leases and resells medallions acquired in
satisfaction of foreclosures by Elk.
Medallion Auto Management LLC, which was formed in June 2003 and began
operations in July 2003, owns, leases and resells automobiles in
conjunction with the activities of EAF Enterprises LLC.
EAF Leasing LLC and EAF Leasing II LLC, which were formed in August 2003
and began operations in October 2003, own and lease medallions acquired
in satisfaction of foreclosures by Elk.
EAF Leasing III LLC, which was formed in January 2004 and began
operations in April 2004, owns and leases medallions acquired in
satisfaction of foreclosures by Elk.
Ameritrans organized another subsidiary on June 8, 1998, Elk Capital
Corporation ("Elk Capital"), which may engage in lending and investment
activities similar to its parent. Since its inception, Elk Capital has
had no operations.
Income Taxes
The Company has elected to be taxed as a Regulated Investment Company
("RIC") under the Internal Revenue Code (the "Code"). A RIC generally
is not taxed at the corporate level to the extent its income is
distributed to its stockholders. In order to qualify as a RIC, the
Company must payout at least 90 percent of its net taxable investment
income to its stockholders as well as meet other requirements under the
Code. In order to preserve this election for fiscal 2005, the Company
intends to make the required distributions to its stockholders.
The Company is subject to certain state and local franchise taxes, as
well as related minimum filing fees assessed by state taxing
authorities. Such taxes and fees are reported as provisions for income
taxes and reflected in each of the fiscal years presented.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect, in
periods in which they have a dilutive effect, the effect of common
shares issuable upon the exercise of stock options and warrants. The
difference between reported basic and diluted weighted average common
shares results from the assumption that all dilutive stock options
outstanding were exercised. For the periods presented, the effect of
common stock equivalents has been excluded from the diluted calculation
since the effect would be antidilutive.
Loan Valuations
The Company's loan portfolio is carried at fair value. Since no ready
market exists for these loans, the fair value is determined in good
faith by the board of directors of the Company (the "Board of
Directors"). In determining the fair value, the Board of Directors
considers factors such as the financial condition of the borrower, the
adequacy of the collateral to support the loans, individual credit
risks, historical loss experience and the relationships between current
and projected market rates and portfolio rates of interest and
maturities. The Board of Directors has determined that the fair value
of the loans approximates cost less unrealized depreciation.
Use of Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
extensive use of estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ
from those estimates. Estimates that are particularly susceptible to
change relate to the determination of the fair value of loans receivable
and other financial instruments.
2. Medallions
During the prior year ended June 30, 2004, Elk transferred City of
Chicago taxicab medallions obtained from defaulted and foreclosed loans
to certain newly formed wholly-owned subsidiaries. The subsidiaries
borrowed funds in the amount of $2,382,201 from Elk to complete the
purchases of the medallions and gained title by paying related transfer
fees and satisfying outstanding liens with Elk and the city of Chicago.
The subsidiaries, in turn, lease these medallions to taxicab operators
or companies in the Chicago market under weekly and long-term operating
leases. The weekly leases, which include both medallions and vehicles
have been made with individuals. These weekly leases automatically
renew each week, up to a maximum period of 157 weeks, but may be
terminated at the option of the lessee at the conclusion of any weekly
period. These lease terms also include an option for the lessee to
purchase either the medallion or vehicle, at an amount defined in the
agreement, at any time throughout the term of the lease, with credit
given for a portion of the lease payments towards the purchase price.
As of December 31, 2004 and June 30, 2004, no purchase options have been
exercised. The long-term medallion leases have been made with taxicab
companies expiring December 31, 2005 through February 28, 2006, and may
be canceled by either party with forty-five days advance written notice.
Leasing income under all medallion and taxi cab leases for the three
months and six months ended December 31, 2004 was $73,796 and $125,333,
respectively.
3. Debentures Payable to SBA
At December 31, 2004 and June 30, 2004 debentures payable to the SBA
consisted of subordinated debentures with interest payable semiannually,
as follows:
Effective 12/31/04 and 6/30/04
Issue Date Due Date Interest Rate Principal Amount
July 2002 September 2012 4.67%(1) $2,050,000
December 2002 March 2013 4.63%(1) 3,000,000
September 2003 March 2014 4.12%(1) 5,000,000
February 2004 March 2014 4.12%(1) 1,950,000
$12,000,000
(1) Elk is required to pay an additional annual user fee of 0.866% on
these debentures.
Under the terms of the subordinated debentures, Elk may not repurchase
or retire any of its capital stock or make any distributions to its
stockholders other than dividends out of retained earnings (as computed
in accordance with SBA regulations) without the prior written approval
of the SBA.
SBA Commitment
In January 2002 the Company and the SBA entered into an agreement
whereby the SBA committed to reserve debentures in the amount of
$12,000,000 to be issued by the Company on or prior to September 30,
2006. A 2% leverage fee will be deducted pro rata as the commitment
proceeds are drawn down. A $120,000 non-refundable fee was paid by Elk
at the time of obtaining the $12,000,000 commitment. In February 2004,
Elk made the final draw down under this commitment.
4. Notes Payable to Banks
At December 31, 2004 and June 30, 2004 Elk had loan agreements with
three banks for lines of credit aggregating $40,000,000. At December 31,
2004 and June 30, 2004, $30,645,652 and $28,908,652 respectively, were
outstanding under these lines. The loans, which mature at various dates
between April 30, 2005 and December 31, 2005, bear interest at the lower
of either the reserve adjusted LIBOR rate plus 1.5% or the banks' prime
rates minus 0.5%.
Upon maturity, Elk anticipates extending these lines of credit for
another year, as has been its practice in previous years. Pursuant to
the terms of the agreements the Company is required to comply with
certain covenants and conditions, as defined in the agreements. The
Company has pledged its loans receivable and other assets as collateral
for the above lines of credit.
5. Commitments and Contingencies
Interest Rate Swaps
On February 11, 2003, Elk entered into an interest rate Swap transaction
for $5,000,000 with a bank, which expired February 11, 2005. Elk
entered into this Swap transaction to protect the Company from an upward
movement in interest rates relating to outstanding bank debt. The Swap
transaction provided for a fixed rate of 3.56% for Elk. If the floating
one-month LIBOR rate falls below the fixed rate, Elk was obligated to
pay the bank for the difference in rates. If the one-month LIBOR rate
rises above the fixed rate, the bank was obligated to pay Elk for the
differences in rates.
6. Other Matters
Quarterly Dividend
The Company's Board of Directors declared a dividend of $0.28125 per
share or $84,375 on September 21, 2004 on the Company's 9 3/8%
Cumulative Participating Preferred Stock (the "Participating Preferred
Stock") for the period July 1, 2004 through September 30, 2004, which
was paid on October 15, 2004 to all holders of record as of September
30, 2004. Similarly, on December 20, 2004, the Company's Board of
Directors declared a dividend of $0.28125 per share or $84,375 on the
Company's 9 3/8% Cumulative Participating Preferred Stock (the
"Participating Preferred Stock") for the period October 1, 2004 through
December 31, 2004, which was paid on January 15, 2005 to all holders of
record as of December 31, 2004. Total dividend aggregated $168,750 in
each of the six months ended December 31, 2004 and 2003.
New Accounting Standards
In December 2004, the FASB issued FASB Statement No. 123 (revised),
"Share-Based Payment." This standard requires all equity-based awards
to employees to be recognized in the Consolidated Statement of
Operations based on their fair value for fiscal years beginning after
June 15, 2005. The standard will apply to all awards granted, modified,
or settled after the effective date. Adoption of this Standard is not
expected to have a material impact on the Company's consolidated results
of operations and financial position.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-
monetary Assets ("SFAS No. 153"), which amends APB Opinion No. 29,
Accounting for Non-monetary Transactions ("APB No. 29"), SFAS No. 153
eliminates the exception from fair value measurement for non-monetary
exchanges of similar productive assets in APB No. 29 and replaces it
with an exception for exchanges that do not have commercial substance. This
statement specifies that a non-monetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly
as a result of the exchange. The provisions in this statement apply to
any exchanges of non-monetary assets occurring in fiscal periods after
June 15, 2005. The adoption of this statement is not expected to have a
material impact on the Company's consolidated financial position or
results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in this section should be used in conjunction
with the consolidated Financial Statements and Notes therewith appearing
in this report Form 10-Q and the Company's Annual Report on Form 10-K
for the year ended June 30, 2004.
Critical Accounting Policies
In the preparation of the Company's financial statements in conformity
with accounting principles generally accepted in the United States,
management uses judgment in selecting policies and procedures and making
estimates and assumptions that affect amounts reported and disclosed in
the financial statements and related notes. Significant estimates that
the Company makes include valuation of loans and equity investments,
evaluation of the recoverability of various receivables and the
assessment of litigation and other contingencies. The Company's ability
to collect receivables and recover the value of its loans depends on a
number of factors, including financial conditions and its ability to
enforce provisions of its contracts in the event of disputes, through
litigation if necessary. Although the Company believes that estimates
and assumptions used in determining the recorded amounts of net assets
and liabilities at December 31, 2004, are reasonable, actual results
could differ materially from the estimated amounts recorded in the
Company's financial statements. Our key critical accounting policies are
those applicable to the valuation of loans receivable and other
investments, including medallions, and contingencies from daily
operations, as discussed below:
Valuation of Loans and Debt Securities. For loans and debt securities,
fair value generally approximates cost less unrealized depreciation.
Overall financial condition of the borrower, the adequacy of the
collateral supporting the loans, individual credit risks, historical
loss experience and other factors are criteria considered in quantifying
the unrealized depreciation, if any, that might exist at the valuation
date.
Equity Securities. The fair value of publicly traded corporate equity
securities is based on quoted market prices. Privately held corporate
equity securities are recorded at the lower of cost or estimated fair
value. For these non-quoted investments, the Company reviews the
financial performance of the privately held companies in which the
investments are maintained. If and when a determination is made that a
decline in fair value below the cost basis is other than temporary, the
related investment is written down to its estimated fair value.
Assets Acquired in Satisfaction of Loans. Assets acquired in
satisfaction of loans are carried at 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.
Medallions. The Company obtained medallions through foreclosure of
loans and the value of such medallions are carried at the net value of
the related
foreclosed loans. The medallions are being treated as
having indefinite lives, therefore, the assets are not being amortized.
However, the Company periodically tests their carrying value for
impairment.
Contingencies. The Company is subject to legal proceedings in the
course of its daily operations from enforcement of its rights in
disputes pursuant to the terms of various contractual arrangements. In
this connection, we must assess the likelihood of any adverse judgment
or outcomes to these matters as well as potential range of probable
losses. A determination of the amount of reserve required, if any, for
these contingencies are made after careful analysis of each individual
issue. The required reserves may change in the future due to new
developments in each matter or changes in approach, such as a change in
settlement strategy in dealing with these matters.
General
Ameritrans acquired Elk on December 16, 1999 in a share for share
exchange. Elk is licensed by the Small Business Administration (SBA) to
operate as a Small Business Investment Company (SBIC) under the Small
Business Investment Act of 1958, as amended. Both Ameritrans and Elk are
registered as investment companies under the Investment Company Act of
1940.
Elk makes loans to and investments in businesses that qualify under SBA
regulations for funding under the Small Business Investment Act of 1958,
as amended. 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 December 31, 2004, 75% of Elk's loan portfolio consisted
of loans secured by taxi medallions and 25% consisted of loans to other
diversified businesses.
From inception through April 2002, Ameritrans' only activities had been
the operations of Elk. In May 2002, Ameritrans made its first loans to
businesses using the proceeds raised from a public offering, which was
completed in April 2002.
Elk created two additional wholly-owned subsidiaries, EAF Enterprises
LLC and Medallion Auto Management LLC, in June 2003. Beginning July
2003, EAF Enterprises LLC took title to five of Elk's foreclosure
medallions and leased them to individual operators and Medallion Auto
Management LLC purchased "used" vehicles to be leased with the
medallions. The taxi operators have the option to purchase both the
medallions and vehicles. Elk created two more wholly-owned
subsidiaries, EAF Leasing LLC and EAF Leasing II LLC, in August 2003.
Starting October 2003, EAF Leasing LLC and EAF Leasing II LLC acquired
fourteen and thirteen medallions, respectively, in satisfaction of
foreclosures from Elk and leased them to corporate operators. Elk
created another wholly-owned subsidiary, EAF Leasing III LLC, in January
2004. Commencing in April 2004, Elk transferred eight medallions
acquired in satisfaction of foreclosures to EAF Leasing III LLC which,
in turn, leased them to a corporate operator.
Results of Operations for the Three Months Ended December 31, 2004 and
2003
Total Investment Income
The Company's interest income for the three months ended December 31,
2004 decreased $176,319 or 13% to $1,154,708 as compared to the
comparable period ended December 31, 2003, as a result of lower average
interest rates charged on new and modified loans. The decrease of
interest income was partially offset by an increase in other fees of
$31,465, primarily due to an increase in origination fees, and an
increase in medallion and vehicle leasing income of $50,084.
Operating Expenses
Interest expense for the three months ended December 31, 2004 increased
$98,321 or 29% to $441,000 as compared to the three months ended
December 31, 2003, due to higher interest rates charged on outstanding
bank borrowing. Salaries and employee benefits increased $52,062 or 22%
as compared to the similar period in the prior year. These increases
resulted primarily from increases specified in certain officers'
employment agreements. Professional fees decreased $46,265 or 19% as
compared to the comparable period in the prior year. Foreclosure
expenses decreased $44,708 or 83% and write off and depreciation of
interest and loans receivable decreased $67,121 or 19% as compared to
the similar quarter in the prior year. Both of these decreases reflect
the reduction of foreclosures of Chicago medallions loans. Other
administrative expenses decreased $17,938 or 6% as compared to the
similar period in the prior year, due primarily to a reduction in
Chicago service fees and computer expense partially offset by increases
in commissions and depreciation.
Net Loss
Net loss for the three months ended December 31, 2004 increased by
$133,424 or 69% to $327,240 as compared to the comparable period ended
December 31, 2003. The increase in net loss between the periods was
attributable primarily to a decrease in interest income and a loss
realized on an equity investment.
Results of Operations for the Six Months Ended December 31, 2004 and
2003
Total Investment Income
The Company's interest income for the period ended December 31, 2004
decreased $437,437 or 16% to $2,283,765 as compared with the comparable
period ended December 31, 2003, as a result of lower average interest
rates charged on new and modified loans. The decrease in interest
income was partially offset by an increase in other fees of $80,781,
primarily due to an increase in origination fees, and an increase in
medallion and vehicle leasing income of $87,785.
Operating Expenses
Interest expense for the six months ended December 31, 2004 increased
$107,724 or 15% to $823,156 as compared to the six months ended December
31, 2003, due to higher interest rates charged on outstanding bank
borrowings. Salaries and employee benefits increased $68,179 or 14% as
compared to the similar period in the prior year. These increases
resulted primarily from increases specified in certain officers'
employment agreements. Professional fees decreased $23,584 or 7% as
compared to the comparable period in the prior year. Foreclosure
expenses decreased $249,338 or 95% and write off and depreciation of
interest and loans receivable decreased $221,495 or 36% as compared to
the similar period in the prior year. Both of these decreases reflect
the reduction of foreclosures of Chicago medallion loans. Other
administrative expenses decreased $63,556 or 10% as compared to the
similar period in the prior year, due primarily to a reduction in
Chicago service fees and computer expense partially offset by increases
in commissions and depreciation.
Net Loss
Net loss for the six months ended December 31, 2004 decreased by $69,686
or 22% to $242,528 as compared to the comparable period ended December
31, 2003. The decrease in net loss between the periods was attributable
primarily to a reduction in write-downs of the Chicago loan portfolio
and related foreclosure expenses, which were partially offset by
increases in interest and salaries. Dividends of Participating
Preferred Stock amounted to $168,750 for the six months ended December
31, 2004 and 2003.
Balance Sheet and Reserves
Total assets increased by $1,402,847 as of December 31, 2004 as compared
to total assets as of June 30, 2004. This increase was due to higher
outstanding loans receivable, an increase in equity securities,
partially offset by
reductions in assets acquired in satisfaction of
loans and receivable from debtors on sales of assets acquired in
satisfaction of loans due to payoffs and receipt of settlement proceeds.
In addition, Elk increased its short-term bank borrowings by $1,737,000,
net of proceeds.
Liquidity and Capital Resources
The Company has funded its operations through private and public
placements of its securities, bank financing, the issuance to the SBA of
its subordinated long-term debentures, loan amortization and
prepayments. As a RIC, we distribute at least 90% of our investment
company taxable income. Consequently, we primarily rely upon external
sources of funds to finance growth.
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.
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 December 31, 2004, 72% of Elk's indebtedness was represented by
indebtedness to its banks and 28% by debentures issued to the SBA with
fixed rates of interest plus user fees resulting in rates ranging from
4.99% to 5.54%. Elk currently may borrow up to $40,000,000 under its
existing lines of credit, subject to limitations imposed by its
borrowing base agreement with its banks and the SBA, the statutory and
regulatory limitations imposed by the SBA and the availability of funds.
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 and December 2002, new debentures payable to
the SBA were drawn from the reserved pool of $12,000,000 in the amount
of $2,050,000 and $3,000,000, respectively. The interim interest rates
assigned were 2.351 % and 1.927%, respectively, subsequently adjusted to
long term fixed rates of 4.67% and 4.628% determined on the pooling
dates of September 25, 2002 and March 26, 2003, respectively. On
September 15, 2003 and February 17, 2004, two new debentures payable to
the SBA were drawn in the amount of $5,000,000 and $1,950,000,
respectively. Interim interest rates assigned were 1.682% and 1.595%,
respectively, subsequently adjusted to the long term fixed rate of 4.12%
on the pooling date of March 24, 2004. In addition to the fixed rates,
there is an additional annual SBA user fee on each debenture of 0.87%
per annum making the rates 5.54%, 5.498% and 4.99% before applicable
amortization of points and fees. The draw down in February 2004 was the
final draw from the $12,000,000 commitment.
Loan amortization and prepayments also provide a source of funding for
Elk. Prepayments on loans are influenced significantly by general
interest rates, economic conditions and competition.
Like Elk, Ameritrans will distribute at least 90% of its investment
company taxable income and, accordingly, will continue to rely upon
external sources of funds to finance growth. In order to provide the
funds necessary for expansion, management expects to raise additional
capital and to incur, from time to time, additional bank indebtedness
and (if deemed necessary) to obtain SBA loans. There can be no
assurances that such additional financing will be available on
acceptable terms.
New Accounting Standards
In December 2004, the FASB issued FASB Statement No. 123 (revised),
"Share-Based Payment." This standard requires all equity-based awards
to employees to be recognized in the Consolidated Statement of
Operations based on their fair value for fiscal years beginning after
June 15, 2005. The standard will apply to all awards granted, modified
or settled after the effective date. Adoption of this
Standard is not expected to have a material impact on the Company's
consolidated results of operations and financial position.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-
monetary Assets ("SFAS No. 153"), which amends APB Opinion No. 29,
Accounting for Non-monetary Transactions ("APB No. 29"). SFAS No. 153
eliminates the exception from fair value measurement for non-monetary
exchanges of similar productive assets in APB No. 29 and replaces it
with an exception for exchanges that do not have commercial substance.
This statement specifies that a non-monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions in this
statement apply to any exchanges of non-monetary assets occurring in
fiscal periods after June 15, 2005. The adoption of this statement is
not expected to have a material impact on the Company's consolidated
financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported within the time
periods specified in the Commission's rules and forms, and that such
information is accumulated and communicated to our management to allow
timely decisions regarding required disclosure based closely on the
definition of "disclosure controls and procedures" in Rule 13a-15(e)
promulgated under the Exchange Act. In designing and evaluating the
disclosure controls and procedures, management recognized that any
controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
The Company's business activities contain elements of risk. The Company
considers the principal types of risk to be fluctuations in interest
rates and portfolio valuations. The Company considers the management of
risk essential to conducting its businesses. Accordingly, the Company's
risk management systems and procedures are designed to identify and
analyze the Company's risks, to set appropriate policies and limits and
to continually monitor these risks and limits by means of reliable
administrative and information systems and other policies and programs.
The Company values its portfolio of loans and investments at fair value
as determined in good faith by the Company's Board of Directors in
accordance with the Company's valuation policy. Unlike certain lending
institutions, the Company is not permitted to establish reserves for
loan losses. Instead, the Company must value each individual investment
and portfolio loan on a quarterly basis. The Company records unrealized
depreciation on investments and loans when it believes that an asset has
been impaired and full collection is unlikely. Without a readily
ascertainable market value, the estimated value of the Company's
portfolio of investments and loans may differ significantly from the
values that would be placed on the portfolio if there existed a ready
market for the investments and loans. The Company adjusts the valuation
of the portfolio of loans and investments quarterly to reflect the Board
of Directors' estimate of the current fair value of each investment and
loan in the portfolio. Any changes in estimated fair value of loans are
recorded in the Company's balance sheet as unrealized depreciation on
loans receivable and also in the Company's statement of operations as
write off and depreciation on interest and loans receivable. Any
changes in estimated fair value of investments are recorded in the
Company's balance sheet as accumulated other comprehensive loss.
In addition, the illiquidity of our investments and loan portfolio may
adversely affect our ability to dispose of investments or loans at times
when it may be advantageous for us to liquidate such investments or
loans. Also, if we were required to liquidate some or all of these items
in the portfolio, the proceeds of such liquidation might be
significantly less than the current value of such
investments or loans. Because we borrow money to make loans and
investments, our net operating income is dependent upon the difference
between the rate at which we borrow funds and the rate at which we
loan and invest these funds. As a result, there can be no assurance that
a significant change in market interest rates will not have a material
adverse effect on our interest income. As interest rates rise, our
interest costs increase, decreasing the net interest rate spread we
receive and thereby adversely affect our profitability. Although we
intend to continue to manage our interest rate risk through asset and
liability management, including the use of interest rate swaps,
general rises in interest rates will tend to reduce our interest rate
spread in the short term.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our
periodic reports filed pursuant to the rules promulgated under the
Exchange Act are recorded, processed, summarized and reported within the
periods specified in the Commission's rules and forms and that such
information is accumulated and communicated to our management including
our Chief Executive Officer (also acting as Chief Financial Officer), to
allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognized
that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the
desired control objectives. As of the end of the period covered by this
report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer
(also acting as Chief Financial Officer), of the effectiveness of the
design and operation of our disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on
that evaluation, the Company concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures are
effective in timely communicating the material information required to
be included in our periodic SEC filings.
There were no changes to the Company's internal controls over financial
reporting that occurred during our most recently completed fiscal
quarter that materially affected, or is reasonably likely to materially
affect our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 6-- Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Letter Agreement between Israel Discount Bank of New York and Elk
dated February 8, 2005 extending line of credit.
10.2 Promissory Note dated January 3, 2005 between Ameritrans and Bank
Leumi USA and Letter Agreement dated January 3, 2005 between
aforementioned parties.
10.3 Promissory Note dated December 14, 2004 between Ameritrans and
Citibank, N.A. and Letter Agreement dated December 14, 2004
between aforementioned parties.
31.1 Certification of the Chief Executive and Chief Financial Officer
of the Company pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification of the Chief Executive and Chief Financial Officer
of the Company pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K
December 20, 2004 the Company filed a current report on Form 8-K
reporting under Item 9.01 that the Company issued a press release
announcing that is declared a dividend for the period October 1, 2004
through December 31, 2004.
November 15, 2004 the COmpany filed a current report on form 8-k
announcing its first quarter 2005 results.
(All other items of Part II are inapplicable)
AMERITRANS CAPITAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERITRANS CAPITAL CORPORATION
Date: February 14, 2005 By: /s/ Gary C. Granoff
--------------------------------
Gary C. Granoff
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)