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, 2002
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
Commission File Number 0-22153
AMERITRANS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-2102424
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
747 Third Avenue
Fourth Floor
New York, New York 10017
(Address of Registrant's (Zip Code)
principal executive office)
Registrant's telephone number, including area code: (800) 214-1047
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
The number of shares of Common Stock, par value $.0001 per share, outstanding as
of February 13, 2003: 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, 2002
(unaudited) and June 30, 2002 ................................. 1
Consolidated Statements of Operations -- For the Three Months
and Six Months Ended December 31, 2002 and 2001 (unaudited) ... 3
Consolidated Statements of Cash Flows -- For the Six
Months Ended December 31, 2002 and 2001 (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 ......... 14
Item 4. Controls and Procedures ........................................... 14
Part II. OTHER INFORMATION ................................................ 14
Item 6. Exhibits and Reports on Form 8-K .................................. 14
Signatures ........................................................ 15
-ii-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 (Unaudited) and June 30, 2002
ASSETS
December 31, 2002 June 30, 2002
----------------- -------------
Loans receivable $ 57,094,341 $ 55,029,831
Less: unrealized depreciation on
loans receivable (238,500) (238,500)
------------ ------------
56,855,841 54,791,331
Cash and cash equivalents 747,947 774,062
Accrued interest receivable, net of
unrealized depreciation of $254,089
and $206,272 respectively 1,544,609 1,197,075
Assets acquired in satisfaction of loans 1,083,588 1.108,088
Receivables from debtors on sales of
assets acquired in satisfaction of loans 432,537 367,271
Equity securities 590,638 443,327
Furniture, fixtures and leasehold
improvements, net 151,482 107,757
Prepaid expenses and other assets 346,974 219,305
------------ ------------
TOTAL ASSETS $ 61,753,616 $ 59,008,216
============ ============
The accompanying notes are an integral part of these financial statements.
-1-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 (Unaudited) and June 30, 2002
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 2002 June 30, 2002
----------------- ------------
LIABILITIES
Debentures payable to SBA $ 9,200,000 $ 7,860,000
Notes payable, banks 35,030,000 33,720,000
Accrued expenses and other
liabilities 465,319 434,339
Accrued interest payable 257,319 258,358
Dividends payable 288,935 68,438
------------ ------------
TOTAL LIABILITIES 45,241,573 42,341,135
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock 500,000 and 1,000,000
shares authorized respectively, none
outstanding -- --
9 3/8% Cumulative participating
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 and
2,035,600 shares outstanding, 205 205
Additional paid-in-capital 13,869,545 13,869,545
Accumulated deficit (858,165) (703,127)
Accumulated other comprehensive loss (29,542) (29,542)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 16,582,043 16,737,081
------------ ------------
Treasury stock, at cost, 10,000
shares common stock (70,000) (70,000)
------------ ------------
NET STOCKHOLDERS' EQUITY 16,512,043 16,667,081
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 61,753,616 $ 59,008,216
============ ============
The accompanying notes are an integral part of these financial statements.
-2-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months and Six Months Ended December 31, 2002 and 2001
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
December 31, 2002 December 31, 2001 December 31, 2002 December 31, 2001
------------------ ------------------ ----------------- -----------------
INVESTMENT INCOME
Interest on loans receivable $ 1,543,557 $1,420,029 $ 3,094,557 $2,899,659
Fees and other income 45,312 53,772 102,545 99,473
----------- ---------- ----------- ----------
TOTAL INVESTMENT INCOME 1,588,869 1,473,801 3,197,102 2,999,132
----------- ---------- ----------- ----------
OPERATING EXPENSES
Interest 526,329 631,643 1,067,015 1,372,578
Salaries and employee benefits 214,135 184,867 434,048 339,449
Legal fees 91,336 52,468 153,263 98,555
Miscellaneous administrative expenses 329,481 224,257 622,586 425,844
Loss on assets acquired in
satisfaction of loans, net 4,940 12,720 14,664 50,166
Directors' fee 2,250 8,250 15,500 12,000
Foreclosure expenses 41,985 -- 120,171 --
Write off and depreciation of
interest and loans receivable 119,126 36,521 192,354 54,843
----------- ---------- ----------- ----------
TOTAL OPERATING EXPENSES 1,329,582 1,150,726 2,619,601 2,353,435
----------- ---------- ----------- ----------
OPERATING INCOME 259,287 323,075 577,501 645,697
----------- ---------- ----------- ----------
INCOME BEFORE INCOME TAXES 259,287 323,075 577,501 645,697
----------- ---------- ----------- ----------
INCOME TAXES -- -- 11,483 1,070
----------- ---------- ----------- ----------
NET INCOME 259,287 323,075 566,018 644,627
----------- ---------- ----------- ----------
DIVIDENDS ON PREFERRED STOCK (84,375) -- (168,750) --
----------- ---------- ----------- ----------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ 174,912 $ 323,075 $ 397,268 $ 644,627
----------- ---------- ----------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING
- - Basic 2,035,600 1,745,600 2,035,600 1,745,600
=========== ========== =========== ==========
- - Diluted 2,035,600 1,745,600 2,035,600 1,745,600
=========== ========== =========== ==========
NET INCOME PER COMMON SHARE
- - Basic $ 0.0859 $ 0.1851 $ 0.1952 $ 0.3693
=========== ========== =========== ==========
- - Diluted $ 0.0859 $ 0.1851 $ 0.1952 $ 0.3693
=========== ========== =========== ==========
The accompanying notes are an integral part of these financial statements
-3-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended December 31, 2002 and 2001
December 31, 2002 December 31, 2001
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 566,018 $ 644,627
----------- -----------
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 14,676 16,574
Change in assets and liabilities
Accrued interest receivable (347,534) (240,195)
Prepaid Expenses and other assets (127,669) (284,030)
Accrued expenses and other
liabilities 30,980 (72,557)
Accrued Interest payable (1,039) (22,594)
----------- -----------
TOTAL ADJUSTMENTS (430,586) (602,802)
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 135,432 41,825
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans receivable,
assets acquired in satisfaction of
loans and receivables from debtors
on sales of assets acquired in
satisfaction of loans (2,105,271) (1,107,090)
Purchase of equity securities (147,311) (50,025)
Acquisition of furniture, fixtures and
leasehold improvements (58,401) (10,135)
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (2,310,983) (1,167,250)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable, banks, net 1,310,000 1,420,000
Proceeds from notes payable, SBA, net 1,340,000 --
Dividends paid (500,564) (471,312)
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,149,436 948,688
----------- -----------
The accompanying notes are an integral part of these financial statements
-4-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended December 31, 2002 and 2001
December 31, 2002 December 31, 2001
----------------- -----------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (26,115) (176,737)
CASH AND CASH EQUIVALENTS - Beginning 774,062 575,229
--------- ---------
CASH AND CASH EQUIVALENTS - Ending $ 747,947 $ 398,492
========= =========
Supplemental noncash financing activity:
During the six months ended December 31, 2002, the Company accrued a preferred
stock cash dividend of $84,375 and a common stock cash dividend of $204,560
based on estimated earnings for the quarter ended December 31, 2002.
The accompanying notes are an integral part of these financial statements
-5-
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 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, 2002, the related statements of operations
for the three and six months ended December 31, 2002 and 2001, and cash flows
for the six months ended December 31, 2002 and 2001 included in Item 1 have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "Commission" or the "SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the accompanying consolidated financial statements include all
adjustments (consisting of normal, recurring adjustments) necessary to summarize
fairly the Company's financial position and results of operations. The results
of operations for the six months ended December 31, 2002 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, 2002 as filed with the
Commission.
Organization and Principal Business Activity
Ameritrans, a Delaware corporation, acquired all of the outstanding shares of
Elk Associates Funding Corporation ("Elk") on December 16, 1999 in a share for
share exchange. Prior to the acquisition, Elk had been operating independently
and Ameritrans had no operations. The historical financial statements prior to
December 16, 1999 were those of Elk.
Elk, a New York corporation, is licensed by the Small Business Administration
("SBA") to operate as a Small Business Investment Company ("SBIC") under the
Small Business Investment Act of 1958, as amended. Elk has also registered as an
investment company under the Investment Company Act of 1940 to make business
loans.
Ameritrans is a specialty finance company that through its subsidiary, Elk,
makes loans to taxi owners to finance the acquisition and operation of the
medallion taxi businesses and related assets, and to other small businesses in
the Chicago, New York City, Miami, and Boston markets. Ameritrans is also
registered as a Business Development Company under the Investment Company Act of
1940, and makes other loans and investments permitted under the applicable
statutes and SEC Regulations pertaining thereto. From inception through April
2002, Ameritrans' only activities have been the operations of Elk. In May 2002,
Ameritrans made its first loans to businesses using the proceeds raised from the
Company's public offering completed in April 2002.
-6-
Basis of Consolidation
The consolidated financial statements include the accounts of Ameritrans, Elk
and EAF Holding Corporation ("EAF"), a wholly owned subsidiary of Elk,
collectively referred to as the "Company". All significant inter-company
transactions have been eliminated in consolidation.
EAF was formed in June 1992 and began operations in December 1993. The purpose
of EAF is to own and operate certain real estate assets or other assets acquired
in satisfaction of loans by Elk.
Ameritrans organized another subsidiary on June 8, 1998, Elk Capital Corporation
("Elk Capital"). Elk Capital may engage in similar lending and investment
activities. Since inception, Elk Capital has had no operations or activities.
Reclassifications
Certain amounts in the prior financial statements have been reclassified for
comparative purposes to conform with the presentation in the financial
statements for the three and six months ended December 31, 2002. These
reclassifications have no effect on previously reported net income.
Income Taxes
The Company has elected to be taxed as a Regulated Investment Company under the
Internal Revenue Code. A Regulated Investment Company will generally not be
taxed at the corporate level to the extent its income is distributed to its
stockholders. In order to be taxed as a Regulated Investment Company, the
Company must pay at least 90 percent of its net investment company taxable
income to its stockholders as well as meet other requirements under the Code. In
order to preserve this election for fiscal 2002, the Company intends to make the
required distributions to its stockholders in accordance with applicable tax
rules.
Net Income per Share
During the year ended June 30, 1998, the Company adopted the provision of
Statements of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
No. 128"). SFAS No. 128 eliminates the presentation of primary and fully
dilutive earnings per share ("EPS") and requires presentation of basic and
diluted EPS. Basic EPS is computed by dividing income (loss) available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS is based on the weighted-average number of shares of Common
Stock and Common Stock equivalents outstanding during the period. Common Stock
equivalents have been excluded from the weighted average shares for the three
and six months ended December 31, 2002 and 2001 as inclusion is anti- dilutive.
At December 31, 2002 the Company had 122,224 options outstanding.
-7-
Loan Valuations
The Company's loans are recorded at fair value. Since no ready market exists for
those loans, the fair value is determined in good faith by the Board of
Directors. In determining the fair value, the Company and Board of Directors
consider factors such as the financial condition of the borrower, the adequacy
of the collateral, individual credit risks, historical loss experience and the
relationships between current and projected market rates and portfolio rates of
interest and maturities. To date, fair value of the loans has been determined to
approximate cost less unrealized depreciation and no loans have been recorded
above cost.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Estimates that are particularly susceptible to change relate to the
determination of the fair value of financial instruments.
SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncements
On December 31, 2002, the FASB issued SFAS No.148 ("SFAS 148"), Accounting for
stock-Based Compensation-Transition and Disclosure. SFAS 148 amends SFAS No. 123
("SFAS 123"), Accounting for Stock -Based Compensation, to provide an
alternative method of transition to SFAS 123's fair value method of accounting
for stock-based employee compensation. SFAS 148 also amends the disclosure
provisions of SFAS 123 and APB opinion No. 28, Interim Financial Reporting, to
require disclosure in the summary of significant accounting polices of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. While the statement does not amend SFAS 123 to require
companies to account for employee stock options using the fair value method, the
disclosure provisions of SFAS are applicable to all companies with stock-based
employee compensation, regardless of whether they account for that compensation
using the fair value method of SFAS 123, or the intrinsic value method of APB
opinion No. 25. The company will continue to account for stock-based
compensation according to APB opinion No. 25, while its adoption of SFAS 148
requires the Company to provide prominent disclosures about the effect of SFAS
123 on reported income and will require the Company to disclose these effects in
the interim financial statements as well. The Company does not expect the
adoption of SFAS 148 will have a significant impact to the consolidated
financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No.45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires a company, at
the time it issues a guarantee, to recognize an initial liability for the fair
value of obligations assumed under the guarantee and elaborates on existing
disclosure requirements related to guarantees and warranties. The initial
recognition requirements of FIN 45 are effective for guarantees issued or
modified after December 31, 2002. Adoption of the disclosure requirements were
effective for interim and annual periods ending after December 15, 2002 and did
not have a significant impact on the Company's Consolidated Financial
statements. The Company does not expect the adoption of the intial recognition
requirements of FIN 45 to have a significant impact on its consolidated
financial position or results of operations.
In January 2003, the FASB issued FASB Interpretation No. 46 " Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"). FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective for all
new variable interest entities created or acquired after January 31, 2003. The
provisions of FIN 46 must be applied for the first interim or annual period
beginning after June 15, 2003. The Company is currently evaluating the effect
that the adoption of FIN 46 will have on its results of operations and financial
condition.
NOTE 2 -- Debentures Payable to SBA
At December 31, 2002 and June 30, 2002 debentures payable to the SBA consist of
subordinated debentures with interest payable semiannually, as follows:
Current 12/31/02 6/30/02
Effective Principal Principal
Issue Date Due Date Interest Rate Amount Amount
---------- -------- ------------- ------ ------
September 1993 September 2003 6.12(1) $1,500,000 $1,500,000
September 1993 September 2003 6.12 2,220,000 2,220,000
September 1994 September 2004 8.20(4) -- 2,690,000
June 1996 June 2006 7.71(5) -- 1,020,000
March 1997 March 2007 7.38(2) 430,000 430,000
July 2002 September 2012 4.67(3) 2,050,000 --
December 2002 March 2013 1.93(3)(6) 3,000,000 --
---------- ----------
$9,200,000 $7,860,000
========== ==========
(1) Interest rate was 3.12% from inception through September 1998.
(2) Elk is also required to pay an additional annual user fee of 1% on this
debenture.
(3) Elk is also required to pay an additional annual user fee of 0.87% on this
debenture.
(4) The loan was prepaid in full during September 2002.
(5) The loan was prepaid in full during December 2002.
(6) The interim interest rate assigned for the interim period of December 5,
2002 through March 26, 2003 is 1.927%. The fixed interest rate will be
determined by the SBA's next pooling on March 26, 2003.
-8-
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
During January 2002, Elk 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 Elk
on or prior to September 30, 2006. A 2.5% 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.
During July 2002, a new debenture payable to SBA was drawn from the reserve pool
of $12,000,000 in the amount of $2,050,000 with an interim interest rate of
2.351%. The fixed rate of 4.67% was determined on the pooling date of September
25, 2002. In addition to the fixed rate, there is an additional annual SBA user
fee of 0.87% per annum that will also be charged making the rate 5.55% before
applicable amortization of points and fees.
During December 2002, another new debenture payable to SBA was drawn from the
reserve pool of $12,000,000 in the amount of $3,000,000 with an interim interest
rate of 1.927%. The fixed rate will be determined on the pooling date of March
26, 2003. In addition to the interest rate, there is an additional annual SBA
user fee of 0.87% per annum that will also be charged.
NOTE 3 -- Notes Payable to Banks
At December 31, 2002 and June 30, 2002, Elk had loan agreements with three (3)
banks for lines of credit aggregating $40,000,000. At December 31, 2002 and June
30, 2002, the Company had $35,030,000 and $33,720,000 respectively, outstanding
under these lines. At December 31, 2002, the banks were reviewing Elk's
financial statements and other related documentation to extend lines through
November 30, 2003. On February 6, 2003, one bank with a line of $16,000,000
extended the maturity to November 30, 2003. The current maturities of the other
bank lines are February 28, 2003 and March 3, 2003. The loans bear interest
based on Elk's choice of the lower of either the reserve adjusted LIBOR rate
plus 150 basis points or the banks' prime rates minus 1/2% plus certain fees.
Upon maturity, Elk anticipates extending the lines of credit for another year,
as has been the practice in previous years. Pursuant to the terms of the
agreements Elk is required to comply with certain terms, covenants and
conditions. Elk pledged its loans receivable and other assets as collateral for
the above lines of credit. Ameritrans also guaranteed and pledged its assets for
the Elk bank loans.
-9-
NOTE 4 -- Commitments and Contingencies
Interest Rate Swap
On January 10, 2000 Elk entered into a $5,000,000 interest rate Swap transaction
with a bank which expired on October 8, 2001 and was not renewed. On June 11,
2001, Elk entered into an additional interest rate Swap transaction with the
same bank for $10,000,000 which expired on June 11, 2002 and was not renewed. On
June 11, 2001, Elk entered into another interest rate Swap transaction for
$15,000,000 with this bank expiring June 11, 2003. These Swap transactions were
entered into to protect the Company from an upward movement in interest rates
relating to outstanding bank debt (see Note 3 for terms and effective interest
rates). These Swap transactions call for a fixed rate of 4.95%, 4.35% and 4.95%,
respectively, (plus 150 basis points) for Elk and if the floating one month
LIBOR rate is below the fixed rate then Elk is obligated to pay the bank for the
difference in rates. When the one-month LIBOR rate is above the fixed rate then
the bank is obligated to pay Elk for the differences in rates. The effective
fixed costs on the outstanding bank debt that was swapped, including the 150
basis points, is 6.45%, 5.85% and 6.45%, respectively.
Loan Commitments
At December 31, 2002 and June 30, 2002 the Company had commitments to make loans
totaling approximately $4,097,300 and $1,515,297, respectively, at interest
rates ranging from 6.9% to 17.5%. Approximately $1,345,500 of the December 31,
2002 commitment is comprised of the refinancing of existing loans in the
outstanding portfolio.
Employment Agreements
During November 2001, the Company entered into an employment agreement with an
executive effective as of July 1, 2001, which was subsequently amended by an
agreement dated December 31, 2002. The employment agreement provides for a
minimum base salary of $255,000, which increases to $296,500 as of July 1, 2003,
and thereafter increases yearly, plus an annual bonus. The employment agreement
terminates on July 1, 2008 but will be automatically renewed for five (5) years
unless either the Company or the executive gives notice of non-renewal. The
employment agreement also provides for confidentiality and for non-competition,
and non-solicitation during the term of the agreement and for one (1) year
thereafter.
During November 2001, the Company also entered into a consulting agreement dated
July 1, 2001 with the executive discussed above, which was subsequently amended
by an agreement dated December 31, 2002. The consulting agreement does not
become effective and does not commence unless and until the employment agreement
is terminated due to (i) the executive's voluntary resignation from the Company
or (ii) a notice of non-renewal of the employment agreement from either the
Company or the executive. Upon the effectiveness of the consulting agreement the
consultant shall be paid at a rate equal to 1/2 the monthly salary in effect at
the time the employment agreement is terminated plus any bonus received for that
employment year and other benefits. The agreement also provides for
confidentiality and non-competition for the term of the agreement, and
non-solicitation during the term of the agreement and for one (1) year
thereafter.
Additionally, during November 2001, the Company entered into employment
agreements with five (5) other executives. The Company subsequently amended two
of the employment agreements by agreements dated December 31, 2002. The two
amended employment agreements are for an initial term which expires on July 1,
2008 but which shall be automatically renewed for five (5) years unless either
the Company or the executive gives notice of non-renewal. The remaining three
employment agreements, two of which are dated January 1, 2002 and the third as
of October 1, 2001, are for terms of five (5) years but are also automatically
renewed for five (5) years unless either the Company or the executive gives
notice of non-renewal. In the aggregate, the five employment agreements provide
for a minimum salary of $372,800 per annum, which increases to $415,000 per
annum as of July 1, 2003, and thereafter increases yearly, plus annual bonuses.
The agreements provide for confidentiality and non-competition for the term of
the agreement, and non-solicitation during the term of the agreement and for one
(1) year thereafter.
NOTE 5 -- Other Matters
Quarterly Dividend
The Company's Board of Directors declared a dividend of $0.28125 per share, or
an aggregate of $84,375, on September 20, 2002 on the Company's 9 3/8%
Participating Preferred Stock (the "Participating Preferred Stock") for the
period July 1, 2002 through September 30, 2002 payable on October 7, 2002 for
all holders of the Participating Preferred Stock of record as of September 30,
2002.
The Company's Board of Directors declared a dividend of $0.28125 per share, or
an aggregate of $84,375, on December 23, 2002 on the Company's 9 3/8% cumulative
participating redeemable Preferred Stock for the period October 1, 2002 through
December 31, 2002. The dividend was paid on January 28, 2003 to shareholders of
record as of December 31, 2002.
On September 26, 2002 the Company's Board of Directors declared a dividend of
$0.06 per share of Common Stock for the period April 1, 2002 through June 30,
2002, and a dividend based on estimated earnings for the period July 1, 2002
through September 30, 2002 of $0.11 per share of Common Stock for an aggregate
of $0.17 per share or $347,752. The dividend was paid on October 16, 2002 to
stockholders of record as of October 7, 2002.
-10-
Quarterly Dividend - cont.
The Company's Board of Directors declared a dividend of $0.10 per share of
Common Stock, or an aggregate of $204,560, on January 10, 2003 based on
estimated earnings for the period October 1, 2002 through December 31, 2002. The
dividend was paid on January 28, 2003 to shareholders of record as of January
20, 2003.
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, 2002.
General
Ameritrans acquired Elk on December 16, 1999 in a share-for share exchange. Elk
is licensed by the Small Business Administration (SBA) to operate as a Small
Business Investment Company (SBIC) under the Small Business Investment Act of
1958, as amended. Both Ameritrans and Elk are registered as an investment
company under the Investment Company Act of 1940. Both Ameritrans and Elk are
also registered as a Business Development Company under the Investment Company
Act of 1940.
Elk primarily makes loans and investments to persons who qualify under SBA
regulation as socially or economically disadvantaged. Elk also makes loans and
investments to persons who qualify under SBA regulations as non-disadvantaged.
Elk's primary lending activity is to originate and service loans collateralized
by Chicago, New York City, Boston, and Miami Taxicab Medallions. Elk also makes
loans and investments in other diversified businesses. At December 31, 2002,
75.39% of Elk's portfolio was invested in loans secured by taxi medallions and
24.61% of Elk's loans were to other diversified businesses.
From inception through April 2002, Ameritrans' only activities have been the
operations of Elk. In May 2002, Ameritrans made its first loans to businesses
using the proceeds raised from the Company's public offering completed in April
2002.
Results of Operations For the Six Months Ended December 31, 2002 and 2001
Total Investment Income
The Company's investment income for the six months ended December 31, 2002
increased $197,970 or 6.6% as compared with the six months ended December 31,
2001. This increase was mainly due to the Backup Services Fee the Company
received ($22,500) as a result of executing an agreement with Medallion
Financial Corp and Merrill Lynch to be a standby backup loan servicing agent,
combined
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with income earned by Ameritrans ($65,073) on investments made from the proceeds
of the Company's public offering. Also contributing to the increase in
investment income was an increased loan portfolio balance of $57,094,341 at
December 31, 2002 as compared to $55,653,678 at December 31, 2001. As a back-up
servicer, the Company will earn an annual standby fee. If the agreement is
activated by Merrill Lynch, the Company will become the primary servicer which
will create an additional revenue source.
Operating Expenses
Operating expenses increased $164,157 for the six month period ended December
31, 2002 when compared with the similar period ended December 31, 2001. This
increase was due to an increase in payroll costs of $94,599, legal fees of
$54,708, foreclosure expenses of $120,171 and other administrative expenses of
$196,742, offset by a decrease in interest costs of $305,563 which reflects
lower interest charged on the Company's bank debt combined with the refinancing
of its SBA debentures. The foreclosure expenses are incurred by the Company as
it satisfies outstanding balances incurred by the default borrowers on the
medallions with the City of Chicago so that the Company can repossess and resell
the medallions. Write off and depreciation of interest and loans receivable and
losses on assets acquired for the six month period ended December 31, 2002
increased $102,009 when compared with the six months ended December 31, 2001.
The increase in write off and depreciation of interest and loans receivable is
primary due to the increase in the Chicago loan portfolio delinquencies and
defaults, which is attributed to the economic slowdown and the effects of
September 11, 2001 on the Chicago taxi industry. Activities in connection with
the Chicago operations are as follows: a) $38,325 of charge off of principal due
to losses on 10 of the 20 completed Chicago medallion foreclosures that occurred
in the six months ended December 31, 2002, b) $90,200 of accrued interest on the
completed Chicago medallion foreclosures was written off and, c) the Company did
not accrue an additional $40,817 of interest on certain foreclosed Chicago
medallion loans. In addition, the Company increased its unrealized depreciation
on interest receivable for potential losses on the remaining Chicago taxi
medallion loans that were in default by an additional net amount of $47,817 for
the six months ended December 31, 2002.
Results of Operations
For the Three Months ended December 31, 2002 and 2001
Total investment income
The Company's investment income for the three months ended December 31, 2002
increased to $1,588,869 from $1,473,801, or 7.8%, when compared to the three
month period ended December 31, 2001. This increase is mainly due to income
earned by Ameritrans of $33,992 on investments made from the proceeds of the
Company's public offering completed in April 2002. Also contributing to the
increase in investment income was an increased loan portfolio balance of
$57,094,341 at December 31, 2002 as compared to $56,219,129 at September 30,
2002.
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Operating Expenses
Operating expenses increased $104,031 for the three month period ended December
31, 2002 when compared with the similar period ended December 31, 2001. This
increase was due primarily to an increase in payroll costs of $29,268, legal
fees of $38,868, foreclosure expenses of $41,985 and other administrative
expenses of $105,224, offset by a decrease in interest costs of $105,314. Write
off and depreciation of interest and loans receivable and losses on assets
acquired for the three month period ended December 31, 2002 increased $74,825
when compared with the similar period in the prior year.
Balance Sheet and Reserves
Total assets increased $2,745,400 as of December 31, 2002 when compared with
total assets as of June 30, 2002. This increase was due to cash generated by
Elk's successful sales to the SBA of debentures in the amount of $2,050,000 and
$3,000,000. Elk and the SBA entered into an agreement in January 2002 where the
SBA committed to reserve debentures in the amount of $12,000,000 to be issued by
Elk prior to September 30, 2006. In July 2002 a new debenture payable to the SBA
for $2,050,000 was drawn from the reserved pool of $12,000,000. In September
2002 Elk paid off a SBA debenture in the amount of $2,690,000 in order to reduce
costs. In December 2002 Elk paid off an additional SBA debenture in the amount
of $1,020,000 and also drew a new debenture in the amount of $3,000,000. In
addition Elk drew down an additional $1,310,000 on its bank borrowings in order
to finance expansion. On a consolidated basis, the Company increased its loans
receivable by a net of $2,064,510 between June 30, 2002 and December 31, 2002.
During this six months period, the Company also increased its receivable from
debtors in satisfaction of loans by $65,266 and its equity investments by
$147,311.
Liquidity
At December 31, 2002, 79% of Elk's indebtedness was represented by indebtedness
to its banks and 21% by the debentures issued to the SBA with fixed interest
rates ranging from 4.67% to 8.20%. Elk currently may borrow up to $40,000,000
under its existing lines of credit, subject to the limitations imposed by its
borrowing base agreement with its banks and the SBA, the statutory and
regulatory limitations imposed by the SBA and the availability of funds.
Our sources of liquidity are credit lines with banks, long-term SBA debentures
that are issued to or guaranteed by the SBA, loans receivable amortization and
prepayments. Prepayments on loans receivable are influenced significantly by
general interest rates, economic conditions and competition. As a RIC, both Elk
and Ameritrans distribute at least 90% of our investment company taxable income.
Consequently, we primarily rely upon external sources of funds to finance
growth. In order to provide the funds necessary for our expansion strategy, we
expect to raise additional capital and to incur, from time to time, additional
bank indebtedness and (if deemed necessary by management) to obtain SBA loans.
There can be no assurances that such additional financing will be available on
acceptable terms.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Pursuant to the general instructions to Rule 305 of Regulation S-K, the
qualitative and quantitative disclosures called for by this Item 3 and by Rule
305 of Regulation S-K are inapplicable to the Company at this time.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Based on their evaluation of our disclosure controls and procedures conducted
within 90 days of the date of filing this report on Form 10-Q, our Chief
Executive Officer and the Chief Financial Officer has concluded that our
disclosure controls and procedures (as defined in Rules 13a - 14(c) and 15d -
14(c) promulgated under the Securities Exchange Act of 1934) are effective.
(b) Changes in Internal Controls
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.
PART II. OTHER INFORMATION
ITEM 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated Employment Agreement by and between the Company and
Gary Granoff dated December 31, 2002.
10.2 Amended and Restated Consulting Agreement by and between the Company and
Gary Granoff dated December 31, 2002.
10.3 Amended and Restated Employment Agreement by and between the Company and
Lee Forlenza dated December 31, 2002.
10.4 Master Note dated December 30, 2002 between Citibank, N.A. and the
Company.
99.1 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
There were no reports filed on Form 8-K for the period ending December 31, 2002.
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AMERITRANS CAPITAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERITRANS CAPITAL CORPORATION
Date: February 14, 2003 By: /s/ Gary C. Granoff
---------------------------------
Gary C. Granoff
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
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CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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 for the Ameritrans
Capital Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report.
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly 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 this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
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(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
/s/ Gary C. Granoff
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Gary C. Granoff
President, Chief Executive Officer, and Chief Financial Officer
February 14, 2003
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