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 March 31, 2005
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from ____________ to _______________
Commission File Number 0-22153
AMERITRANS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-2102424
(State of incorporation) (I.R.S. Employer
Identification No.)
747 Third Avenue, New York, New York 10017
(Address of Registrant's principal executive office) (Zip Code)
(800) 214-1047
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 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 May 10, 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 March 31,
2005 (unaudited) and
June 30, 2004 ......................... 1
Consolidated Statements of Operations --
For the
Three Months and Nine Months
Ended March 31, 2005 and 2004
(unaudited)____________________________ 3
Consolidated Statements of Cash Flows --
For the
Nine Months Ended March 31, 2005
and 2004 (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
....................................... 17
Item 4. Controls and Procedures .................. 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......... 18
Signatures ........................................ 19
(All other items omitted from Part II are inapplicable)
-ii-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2005 (Unaudited) and June 30, 2004
ASSETS
March 31, 2005 June 30, 2004
Loans receivable $53,414,168 $49,900,989
Less: unrealized
depreciation on
loans receivable (541,401) (509,770)
Loans receivable, net 52,872,767 49,391,219
Cash and cash equivalents 755,127 416,600
Accrued interest receivable, net
of unrealized depreciation of
$92,000 and $30,500, respectively 786,946 969,912
Assets acquired in satisfaction
of loans 474,728 1,421,723
Receivables from debtors on sales of
assets acquired in satisfaction
of loans 463,233 422,158
Equity securities 1,196,838 1,038,617
Furniture, equipment and leasehold
improvements, net 370,506 439,262
Medallions Under Lease 2,382,201 2,382,201
Prepaid expenses and other assets 599,873 610,214
TOTAL ASSETS $59,902,219 $57,091,906
The accompanying notes are an integral part of these financial
statements.
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2005 (Unaudited) and June 30, 2004
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 2004 June 30, 2004
LIABILITIES
Debentures payable to SBA $12,000,000 $12,000,000
Notes payable, banks 31,970,652 28,908,652
Accrued expenses and other
liabilities 791,089 578,790
Accrued interest payable 124,908 271,630
Dividends payable 84,375 84,375
TOTAL LIABILITIES 44,971,024 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 (2,327,761) (1,902,408)
Accumulated other
comprehensive loss (140,794) (248,883)
15,001,195 15,318,459
Less: Treasury stock, at cost,
10,000 shares of common stock (70,000) (70,000)
TOTAL STOCKHOLDERS' EQUITY 14,931,195 15,248,459
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $59,902,219 $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 Nine Months Ended March 31, 2005 and 2004
(Unaudited)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2005 2004 2005 2004
INVESTMENT INCOME
Interest on loans receivable $1,213,236 $1,249,444 $3,497,001 $3,970,646
Fees and other income 129,594 130,030 318,821 238,476
Leasing income 50,826 48,837 176,159 86,385
TOTAL INVESTMENT INCOME 1,393,656 1,428,311 3,991,981 4,295,507
OPERATING EXPENSES
Interest 449,279 345,172 1,272,435 1,060,604
Salaries and employee benefits 292,927 275,959 848,672 763,525
Occupancy costs 46,336 50,383 141,953 148,624
Professional fees 148,914 152,349 480,212 507,231
Other administrative expenses 314,838 321,188 857,791 927,697
Loss and impairments on assets acquired in
satisfaction of loans, net 18,198 5,102 50,745 41,171
Foreclosure expense - 46,769 14,194 310,302
Write off and depreciation
on interest and loans
receivable 81,356 254,159 471,415 865,713
TOTAL OPERATING EXPENSES 1,351,848 1,451,081 4,137,417 4,624,867
OPERATING LOSS 41,808 (22,770) (145,436) (329,360)
OTHER INCOME (EXPENSE)
(Loss) gain on sale of
securities - - (50,000) 5,665
Gain on sale of asset acquired 32,829 - 34,713 -
Equity in loss of investee - (24,747) (4,021) (24,747)
TOTAL OTHER INCOME (EXPENSE) 32,829 (24,747) (19,308) (19,082)
LOSS BEFORE PROVISION
FOR INCOME TAXES 74,637 (47,517) (164,744) (348,442)
PROVISION FOR INCOME TAXES 4,337 4,106 7,484 15,396
NET LOSS $ 70,300 $ (51,623) $(172,228) $(363,838)
DIVIDENDS ON PREFERRED STOCK $ (84,375) $ (84,375) $(253,125) $(253,125)
NET LOSS AVAILABLE TO
COMMON SHAREHOLDERS $ (14,075) $(135,998) $(425,353) $(616,963)
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 $ (0.01) $ (0.07) $ (0.21) $ (0.30)
- Diluted $ (0.01) $ (0.07) $ (0.21) $ (0.30)
The accompanying notes are an integral part of these financial
statements
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 2005 and 2004 (Unaudited)
March 31, March 31,
2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (172,228) $ (363,838)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 70,404 49,765
Loss (gain) on sale of equity
securities 50,000 (5,665)
Gain on sale of asset acquired (34,713) -
Equity in loss of investee 4,021 24,747
Change in operating assets and liabilities:
Changes in unrealized depreciation on
loans receivable and accrued interest
receivable 109,131 (458,900)
Accrued interest receivable 105,466 796,902
Prepaid expenses and other assets 10,341 (118,997)
Accrued expenses and other liabilities 212,229 87,471
Accrued interest payable (146,722) (155,723)
TOTAL ADJUSTMENTS 380,227 219,600
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 207,999 (144,238)
CASH FLOWS FROM INVESTING ACTIVITIES
Loans receivable (3,666,379) (615,026)
Assets acquired in satisfaction of loans 696,275 288,500
Receivables from debtors on sales of
assets acquired in satisfaction
of loans 397,558 7,000
Proceeds from sale of equity securities - 84,084
Purchases of equity securities (104,153) (200,600)
Sale of automobiles - 60,125
Capital expenditures (1,649) (369,505)
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (2,678,347) (745,422)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable, banks 33,995,922 3,430,000
Repayments of notes payable, banks (30,933,922) (5,151,348)
Proceeds from debentures payable to SBA - 6,950,000
Repayment of debentures payable to SBA - (4,150,000)
Dividends paid (253,125) (253,125)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,808,875 825,527
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 338,527 (64,133)
CASH AND CASH EQUIVALENTS - Beginning 416,600 498,669
CASH AND CASH EQUIVALENTS - Ending $ 755,127 $434,536
The accompanying notes are an integral part of these financial
statements.
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Nine Months Ended March 31, 2005 and 2004 (Unaudited)
March 31, 2005 March 31, 2004
SUPPLEMENTAL DISCLOSURES OF
NON-CASH INVESTING ACTIVITIES:
Unrealized gain (loss) on
equity securities arising
during the period $ 63,089 $ (9,666)
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 $ (438,633) $ -
Reclassification of loans
assets acquired in satisfaction
of loans $ (153,200) $ -
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 March 31, 2005, and the related
consolidated statements of operations and cash flows for the three months
and nine months ended March 31, 2005 and 2004 have been prepared by the
Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "Commission"). Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant
to such rules and regulations. In the opinion of management, the
accompanying consolidated financial statements include all adjustments
(consisting of normal, recurring adjustments) necessary to summarize
fairly the Company's financial position and results of operations.
The results of operations for the nine months ended March 31, 2005
are not necessarily indicative of the results of operations for the full
year or any other interim period. These financial statements should be
read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 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, makes loans primarily to taxi owners to
finance the acquisition and operation of taxi medallions and related
assets, and to other small businesses in the New York City, Chicago,
Miami, and Boston markets. 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 Enterprises LLC, Medallion Auto Management LLC,
EAF Leasing LLC, EAF Leasing II LLC and EAF Leasing III LLC,
(collectively referred to as the "Company"). All significant inter-
company transactions have been eliminated in consolidation.
EAF Holding Corporation, which was formed in June 1992 and began
operations in December 1993, owns and operates certain real estate
assets acquired in
satisfaction of defaulted loans made by Elk.
EAF Enterprises LLC, which was formed in June 2003 and began
operations in July 2003, owns, leases and resells medallions
acquired in satisfaction of foreclosures by Elk.
Medallion Auto Management LLC, which was formed in June 2003 and began
operations in July 2003, owns, leases and resells automobiles in
conjunction with the 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 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 March 31, 2005 and June 30, 2004, no purchase options had been
exercised. The long-term medallion leases have been made with taxicab
companies expire from December 31, 2005 through February 28, 2006, and may
be canceled by either party with forty-five days advance written notice.
Leasing income under all medallion and taxi cab leases for the three
months and nine months ended March 31, 2005 was $50,826 and $176,159,
respectively.
3. Debentures Payable to SBA
At March 31, 2005 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 the $12,000,000 commitment was obtained. In February 2004,
Elk made the final draw down under this commitment.
4. Notes Payable to Banks
At March 31, 2005 and June 30, 2004 Elk had loan agreements with
three banks for lines of credit aggregating $40,000,000. At March 31,
2005 and June 30, 2004, $31,970,652 and $28,908,652 respectively, were
outstanding under these lines. The loans, which mature at various dates
between May 31, 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 that the banks will extend these lines of
credit for another year, as has been their practice in previous years.
Pursuant to the terms of the agreements the Company is required to comply
with certain covenants and conditions, as defined therein. 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 hedge-against 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 fell below the fixed rate, Elk was obligated to
pay the bank for the difference in rates. But, if the one-month LIBOR rate
rose above the fixed rate, the bank was obligated to pay Elk for the
differences in rates.
6. Comprehensive Income (Loss)
Total comprehensive income (loss) for the three-month periods ended
March 31, 2005 and 2004, after considering other comprehensive income (loss
including unrealized gains on marketable securities of $55,981 and $1,000,
was $126,281 and ($50,623), respectively.
Total compresensive income (loss) for the nine-month period ended
March 31, 2005 and 2004, after considering other compresensive income (loss)
including unrealized gains (losses) on marketable securities of $108,089 and
($15,331), was ($64,139) and ($379,169), respectively.
7. 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 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. On March 22, 2005,
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
for the period January 1, 2005 through March 31, 2005, which was paid on
April 18, 2005 to all holders of record as of April 1, 2005. Total
dividends paid aggegated $253,125 in each of the nine months ended
March 31, 2005 and 2004.
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 in 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 the financial condition of the debtors and
its ability to enforce provisions of its contracts in the event of disputes,
through litigation if necessary. Although the Company believes that
estimates and assumptions used in determining the recorded amounts of net
assets and liabilities at March 31, 2005, 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 Receivable. For loans receivable, fair value generally
approximates cost less unrealized depreciation. Overall financial condition
of the borrower, the adequacy of the collateral supporting the loans,
individual credit 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 cost of
disposal. Losses incurred at the time of foreclosure are charged to the
unrealized depreciation on loans receivable. Subsequent reductions in
estimated net realizable value are charged to operations as losses on
assets acquired in satisfaction of loans.
Medallions. The Company obtained medallions through foreclosure of
loans and the value of such medallions are carried at the lower of the net
value of the related
foreclosed loans or the fair market value of the medallions. The medallions
are being treated as having indefinite lives, therefore, the assets are not
being amortized. However, the Company periodically tests their carrying
value for impairment.
Contingencies. The Company is subject to legal proceedings in the
course of its daily operations from enforcement of its rights in
disputes pursuant to the terms of various contractual arrangements. In
this connection, the Company assesses the likelihood of any adverse judgment
or outcomes to these matters as well as a potential range of probable
losses. A determination of the amount of reserve required, if any, for
these contingencies is made after careful analysis of each individual
issue. The required reserves may change in the future due to new
developments in each matter or changes in approach, such as a change in
settlement strategy in dealing with these matters.
General
Ameritrans acquired Elk on December 16, 1999 in a share for share
exchange. Elk is licensed by the Small Business Administration (SBA) to
operate as a Small Business Investment Company (SBIC) under the Small
Business Investment Act of 1958, as amended. 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 the cities of New York, Boston, Chicago and Miami
taxicab medallions. Elk also makes loans and investments in other diversified
businesses. At March 31, 2005, 74% of Elk's loan portfolio consisted
of loans secured by taxi medallions and 26% consisted of loans to other
diversified businesses.
From inception through April 2002, Ameritrans' only activity had been
the operations of Elk. In May 2002, Ameritrans commenced making 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 March 31, 2005 and
2004
Total Investment Income
The Company's interest income for the three months ended March 31,
2005 decreased $36,208 or 3% to $1,213,236 as compared to the
comparable period ended March 31, 2004, 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 medallion and
vehicle leasing income of $1,989.
Operating Expenses
Interest expense for the three months ended March 31, 2005 increased
$104,107 or 30% to $449,279 as compared to the three months ended
March 31, 2004, due to higher interest rates charged on outstanding
bank borrowing as well as higher outstanding bank notes payable. Interest
rates charged on two outstanding SBA debentures in the amount of $5,000,000
and $1,950,000, respectively, also increased due to the assignment of the
long term fixed rate of 4.12% on the pooling date of March 24, 2004 adjusted
from the interim rates of 1.682% and 1.595%, respectively. Salaries and
employee benefits increased $16,968 or 6% as compared to the similar period
in the prior year. These increases resulted primarily from increases
specified in certain officers' employment agreements as well as commissions
paid to an employee. Professional fees decreased $3,435 or 2% as compared
to the comparable period in the prior year due primarily to a reduction in
Chicago legal fees. Foreclosure expenses decreased $46,769 or 100% and
write off and depreciation of interest and loans receivable decreased
$172,803 or 68% 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 $6,350 or 2% 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 consultant fees related to compliance with Section 404 of the
Sarbanes-Oxley Act of 2002.
Net Income (Loss)
Net income increased from a net loss of $51,623 in the period ended March 31,
2004 to a net income of $70,300 in the period ended March 31, 2005. The
increase in net income between the periods was attributable primarily to
fewer 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 $84,375 for the three
months ended March 31, 2005 and 2004.
Results of Operations for the Nine Months Ended March 31, 2005 and
2004
Total Investment Income
The Company's interest income for the nine months ended March 31, 2005
decreased $473,645 or 12% to $3,497,001 as compared with the comparable
period ended March 31, 2004, 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 $80,345,
primarily due to an increase in origination fees, and an increase in
medallion and vehicle leasing income of $89,774.
Operating Expenses
Interest expense for the nine months ended March 31, 2005 increased
$211,831 or 20% to $1,272,435 as compared to the nine months ended March 31,
2004, due to higher interest rates charged on outstanding bank borrowings as
well as higher outstanding bank notes payable. Interest rates charged on
two outstanding SBA debentures in the amount of $5,000,000 and $1,950,000
respectively, also increased due to the assignment of the long term fixed
rate of 4.12% on the pooling date of March 24, 2004 adjusted from the
interim rates of 1.682% and 1.595% respectively. Salaries and employee
benefits increased $85,147 or 11% as compared to the similar period in the
prior year. These increases resulted primarily from increases specified in
certain officers' employment agreements as well as the addition of an
employee retained in January 2004. Professional fees decreased
$27,019 or
5% as compared to the comparable period in the prior year due primarily to
a reduction in Chicago legal fees. Foreclosure expenses decreased $296,108
or 95% and write off and depreciation of interest and loans receivable
decreased $394,298 or 46% 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 $69,906
or 8% 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 depreciation and consultant fees related to
compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
Net Loss
Net loss for the nine months ended March 31, 2005 decreased by $191,610
or 53% to $172,228 as compared to the comparable period ended March
31, 2004. 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 $253,125 for the nine months ended March
31, 2005 and 2004.
Balance Sheet and Reserves
Total assets increased by $2,810,313 as of March 31, 2005 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 due to sale of
assets acquired. In addition, Elk increased its short-term bank borrowings
by $3,062,000, net of repayments made.
Liquidity and Capital Resources
The Company has funded its operations through private placements and public
offerings of its securities, bank financing, the issuance to the SBA of
its subordinated long-term debentures, loan amortization and
prepayments. As a RIC, the Company distributes at least 90% of our
investment company taxable income. Consequently, the Company primarily
relies 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 March 31, 2005, 73% of Elk's indebtedness was represented by
indebtedness to its banks and 27% 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, $8,029,348 of
which was available for draw down as of March 31, 2005, under its existing
lines of credit, subject to limitations imposed by its borrowing base
agreement with its banks and the SBA, the statutory and regulatory
limitations imposed by the SBA and the availability of funds. 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 Statement No. 123 (revised),
"Share-Based Payment." This standard is a revision of FASB Statement
No. 123, Accounting for Stock Based Compensation, and requires all
equity-based awards to employees to be valued at their fair value and
charged to operations over the employee service period. This statement
is in effect for the first interim periods after June 15, 2005. This
statement applies to all employee 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 also issued Statement No. 153, Exchanges of Non-
monetary Assets ("SFAS No. 153"), which amends APB Opinion No. 29,
Accounting for Non-monetary Transactions ("APB No. 29"), Statement 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 of the Statement are effective
for nonmonetary asset exchanges occuring in fiscal periods beginning 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 as defined under
the Securities Exchange Act Rule 13a-15(e), that are designed to ensure that
information required to be disclosed in our periodic reports filed pursuant
to the rules promulgated under the Exchange Act are recorded, processed,
summarized and reported within the time periods specified in the SEC's
rules and forms and that such information is accumulated and communicated to
our management including our Chief Executive Officer (also acting as Chief
Financial Officer), to allow timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving
the desired control objectives. As of the end of the period covered by this
report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer
(also acting as Chief Financial Officer), of the effectiveness of the
design and operation of our disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on
that evaluation, the Company concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures are
effective in timely communicating the material information required to
be included in our periodic SEC filings.
There were no changes to the Company's internal controls over financial
reporting 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 May 5, 2005 extending line of credit.
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
On March 22, 2005, the Company filed a current report on Form 8-K reporting
under Items 2.02 and 9.01 that the Company issued a press release announcing
its payment of dividends to holders of its preferred stock.
On February 23, 2005, the Company filed a current report on Form 8-K
reporting under Item 2.02 that the Company issued a press release announcing
its share ownership in Fusion Telecommunications International Inc.
On February 14, 2005, the Company filed a current report on Form 8-K
reporting under Items 2.02 and 9.01 that the Company issued a press
release announcing its second quarter 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
Dated: May 16, 2005
By: /s/ Gary C. Granoff
Gary C. Granoff
President, Chief Executive Officer and
Chief Financial Officer
Exhibit 31.1
CERTIFICATION UNDER SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
DISCLOSURE IN THE REGISTRANT'S QUARTERLY REPORT
I, Gary C. Granoff, President, Chief Executive Officer, and Chief Financial
Officer of Ameritrans Capital Corporation, certify that:
1. I have reviewed this quarterly report on Form 10 Q of Ameritrans Capital
Corporation (the "report");
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operation, and cash flows of the
registrant as of, and for, the periods presented in the report.
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a 15(e) and 15d 15(e))
and internal control over financial reporting (as defined in Exchange Act
Rules 13a 15(f) and 15d 15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such
internal controls over financial reporting to be designed under my
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principle;
(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report my conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Dated: May 16, 2005
By: /s/ Gary C. Granoff
Gary C. Granoff
President, Chief Executive Officer and
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES OXLEY ACT OF 2002
In connection with the Quarterly Report of Ameritrans Capital Corporation
(the "Company") on Form 10-Q for the quarter ended March 31, 2005, as filed
with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Gary C. Granoff, President, Chief Executive Officer, and Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002,
that:
1. The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition, and results of operations of the Company.
By: /s/ Gary C. Granoff
Gary C. Granoff
President, Chief Executive Officer, and Chief Financial Officer
May 16, 2005