SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2000
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
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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 May 5, 2000: 1,745,600
<PAGE>
AMERITRANS CAPITAL CORPORATION
FORM 10-Q
Table of Contents
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements .................................................................. 1
Consolidated Balance Sheets as of March 31, 2000
(unaudited) and June 30, 1999 ................................................... 2
Consolidated Statements of Operations --For the Three Months
and Nine Months Ended March 31, 2000 and 1999 (unaudited) ....................... 4
Consolidated Statements of Cash Flows -- For the Nine
Months Ended March 31, 2000 and 1999 (unaudited) ................................ 5
Notes to Consolidated Financial Statements ........................................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................................... 15
Signatures .......................................................................... 17
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-i-
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
On December 16, 1999, Ameritrans Capital Corporation (the "Company") acquired
Elk Associates Funding Corporation ("Elk") in a share-for-share exchange. Prior
to the acquisition, Elk had been operating independently and the Company had no
operations. The consolidated balance sheet of the Company as of March 31, 2000,
the related statements of operations, and cash flows for the nine months ended
March 31, 2000 and March 31, 1999 included in Item 1 have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of management, the accompanying 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, 2000 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 Elk's
Annual Report on Form10-K/A for the fiscal year ended June 30, 1999 as filed
with the Commission.
<PAGE>
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 (Unaudited) and June 30, 1999
ASSETS
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<CAPTION>
March 31, 2000 June 30, 1999*
-------------- -------------
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Loans receivable ................................... $ 58,583,357 $ 51,103,932
Less: allowance for loan losses .................... (380,000) (380,000)
------------ ------------
58,203,357 50,723,932
Cash and cash equivalents .......................... 139,868 542,290
Accrued interest receivable ........................ 802,056 714,626
Assets acquired in satisfaction of loans ........... 612,491 612,491
Receivables from debtors on sales of assets acquired
in satisfaction of loans ....................... 754,202 409,939
Equity securities .................................. 728,050 909,386
Furniture, fixtures and leasehold improvements, net 116,318 105,440
Prepaid expenses and other assets .................. 475,860 492,697
------------ ------------
TOTAL ASSETS ................... $ 61,832,202 $ 54,510,801
============ ============
</TABLE>
* Restated
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 (Unaudited) and June 30, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
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March 31, 2000 June 30, 1999*
-------------- --------------
<S> <C> <C>
LIABILITIES
Debentures payable to SBA .......................... $ 8,880,000 $ 8,880,000
Notes payable, banks ............................... 38,600,000 31,000,000
Accrued expenses and other liabilities ............. 443,147 223,458
Accrued interest payable ........................... 403,189 354,918
Dividends payable .................................. 296,752 314,208
----------- -----------
TOTAL LIABILITIES ............................. 48,623,088 40,772,584
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $.0001 par value: 5,000,000 shares
authorized; 1,745,600 shares issued and outstanding, 175 175
Additional paid-in-capital ......................... 13,048,429 13,214,558
Restricted capital ................................. -0- 256,916
Retained earnings .................................. 48,756 4,815
Accumulated other comprehensive income ............. 111,754 261,753
----------- -----------
TOTAL STOCKHOLDERS' EQUITY .................... 13,209,114 13,738,217
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $61,832,202 $54,510,801
=========== ===========
</TABLE>
* Restated
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
<TABLE>
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AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months and Nine Months Ended March 31, 2000 and 1999
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest on loans receivable $1,612,746 $1,328,597 $4,519,669 $3,804,341
Fees and other income 118,675 77,424 409,991 296,628
Gain on sales of equity sec 90,748 -0- 166,917 -0-
----------- ----------- ----------- -----------
TOTAL INVESTMENT INCOME 1,822,169 1,406,021 5,096,577 4,100,969
----------- ----------- ----------- -----------
OPERATING EXPENSES
Interest 887,450 612,482 2,433,497 1,804,597
Salaries and employee benefits 202,743 157,218 483,871 431,701
Legal fees 94,495 77,874 332,044 222,135
Miscellaneous administrative expenses 169,809 172,683 607,726 582,690
Loss on assets acquired in
satisfaction of loans, net 30,240 5,164 32,175 5,432
Directors' fee 11,625 13,000 31,875 26,250
Bad debt expense 89,080 52,500 170,130 101,465
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 1,485,442 1,090,921 4,091,318 3,174,270
----------- ----------- ----------- -----------
OPERATING INCOME 336,727 315,100 1,005,259 926,699
NET INCOME BEFORE INCOME TAXES 336,727 315,100 1,005,259 926,699
INCOME TAXES (Benefit) 6,712 224 18,695 (69)
----------- ----------- ----------- -----------
NET INCOME $330,015 $314,876 $986,564 $926,768
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,745,600 1,745,600 1,745,600 1,745,600
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE $.1891 $.1803 $.5652 $.5309
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
-4-
<PAGE>
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended March 31, 2000 and 1999
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March 31, 2000 March 31, 1999
-------------- --------------
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 986,564 $ 926,768
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 37,485 28,194
Increase in accrued interest receivable (87,430) (139,100)
(Increase) decrease in prepaid expenses and other assets 16,837 (147,540)
Increase in accrued expenses and other liabilities 219,689 73,532
Increase (decrease) in accrued interest payable 48,271 (2,872)
----------- -----------
TOTAL ADJUSTMENTS 234,852 (187,786)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,221,416 738,982
----------- -----------
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 (7,823,688) (7,861,661)
Purchases (sales) of equity securities 31,337 (267,241)
Acquisition of furniture, fixtures and leasehold
improvements (48,362) (14,589)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (7,840,713) (8,143,491)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable, banks, net 7,600,000 7,265,000
Dividends paid (960,080) (942,624)
Capitalization of restructuring costs (423,045) -0-
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES $6,216,875 $6,322,376
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED), Continued
For the Nine Months Ended March 31, 2000 and 1999
March 31, 2000 March 31, 1999
-------------- --------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS $(402,422) $(1,082,133)
CASH AND CASH EQUIVALENTS - Beginning 542,290 1,755,429
----------- -----------
CASH AND CASH EQUIVALENTS - Ending $139,868 $673,296
=========== ===========
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- Organization and Summary of Significant Accounting Policies
Organization and Principal Business Activity
Ameritrans Capital Corporation (the "Company"), a Delaware corporation,
acquired all of the outstanding shares of Elk Associates Funding Corporation, on
December 16, 1999 in a share for share exchange. Prior to the acquisition, Elk
had been operating independently and Ameritrans had no operations.
Elk Associates Funding Corporation ("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.
The Company makes loans to taxi owners to finance the acquisition and
operation of the medallion taxi businesses and related assets, and to other
small businesses in the New York City, Chicago, Miami, and Boston markets.
Loans and the Allowance for Loans Losses
Loans are stated at cost, net of participation with other lenders, less an
allowance for possible losses. This amount represents the fair value of such
loans as determined in good faith by the Board of Directors. The allowance for
loan losses is maintained at a level that, in the Board of Directors' judgement,
is adequate to absorb losses inherent in the portfolio. The allowance for loan
losses is reviewed and adjusted periodically by the Board of Directors on the
basis of available information, including the fair value of the collateral held,
existing risk of individual credits, past loss experience, the volume,
composition and growth of the portfolio, and current and projected economic
conditions. Because of the inherent uncertainty in the estimation process, the
estimated fair values of the loans may differ significantly from the values that
would have been used had a ready market existed for such loans and the
differences could be material. As of March 31, 2000 and June 30, 1999
approximately 79% and 79%, respectively, of all loans are collateralized by New
York City, Boston, Chicago, and Miami taxicab medallions.
Accounting Standard for Impairment of Loans
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 114 as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan --
Income Recognition and Disclosure", a loan is determined to be impaired if it is
probable that the contractual amounts due will not be collected in accordance
with the terms of the loan. The SFAS generally requires that impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. As all of the Company's loans are collateral dependent,
impairment is measured based on the fair value of the collateral. If the fair
value of the impaired loan is less than the recorded investment in the loan
(including accrued interest, net of deferred loan fees or costs, and unamortized
premium or discount) the Company recognized an impairment by creating a
valuation allowance with a corresponding charge to the provision for loan
losses. The Company individually evaluates all loans for impairment.
7
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Loans Receivable
Loans are placed on nonaccrual status once they become 180 days past due as
to principle or interest. In addition, loans that are not fully collateralized
and in the process of collection are placed on nonaccrual status when, in the
judgement of management, the ultimate collectibility of interest and principle
is doubtful.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to be
cash equivalents.
The Company has cash balances in banks in excess of the maximum amount
insured by the FDIC as of March 31, 2000 and June 30, 1999.
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 2000, the Company intends to make the
required distributions to its stockholders in accordance with applicable tax
rules.
Depreciation and Amortization
Depreciation and amortization of furniture, fixtures and leasehold
improvements is computed on the straight-line method at rates adequate to
allocate the cost of applicable assets over their expected useful lives.
Net Income per Share
During the year ended June 30, 1998, the Company adopted the provision of
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 at year end. At March 31, 2000
and June 30, 1999 the Company had 100,000 options outstanding, of which 30,000
options are considered anti-dilutive and the remaining 70,000 options are
dilutive and resulted in common stock equivalents of 5084 shares.
Loan Costs
Loan costs are included in prepaid expenses and other assets. Amortization
of loan costs is computed on the straight-line method over ten (10) years. At
March 31, 2000 and June 30, 1999, loan costs amounted to $110,990 and $129,331,
respectively, net of accumulated amortization of $132,991 and $114,650,
respectively.
8
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Assets Acquired in Satisfaction of Loans
Assets acquired in satisfaction of loans are carried at estimated fair
value less selling costs. Losses incurred at the time of foreclosure are charged
to the allowance for loan losses. Subsequent reductions in estimated net
realizable value are recorded as losses on assets acquired in satisfaction of
loans.
Basis of consolidation
The consolidated financial statements include the accounts of Ameritrans
Capital Corporation ("the Company"), Elk Associates Funding Corporation ("Elk"),
EAF Holding Corporation ("EAF"), and Elk Capital Corporation ("Elk Capital"),
which are, wholly owned subsidiaries of the Company. All intercompany
transactions have been eliminated.
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 allowance for loan losses and the fair value of financial
instruments.
Comprehensive Income
During the year ended June 30, 1999, the Company adopted SFAS No. 130
"Reporting Comprehensive Income". SFAS 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income.
Stock-Based Compensation
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued. SFAS 123 prescribes accounting and reporting standards for all
stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB25") and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company intends to continue to account for its stock based
compensation plans in accordance with the provisions of APB 25.
Business Segment
During the year ended June 30, 1999, the Company adopted SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information", which
supersedes SFAS No. 14, "Financial Reporting for Segments of A Business
Enterprise". SFAS No. 131 establishes standards for the way the public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statement regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Company has
determined that under SFAS No. 131, it operates in one segment of financing
services. The Company's customers and operations are within the United States.
9
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Loan Sales and Servicing Fee Receivable
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" was issued in June 1996. SFAS 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. This statement also provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. It requires that liabilities
and derivatives incurred or obtained by transferors as part of a transfer of
finanical assets be initially measured at fair value. SFAS 125 also requires
that servicing assets be measured by allocating the carrying amount between the
assets sold and retained interest based on their relative fair values at the
date of transfer. Additionally, this statement requires that the servicing
assets and liabilities be subsequently measured by (a) amortization in
proportion to and over the period of estimated net servicing income or loss and
(b) assessment for asset impairment or increased obligation based on their fair
values. SFAS 125 also requires the Company's excess servicing rights be measured
at fair market value and reclassified as interest only receivables and accounted
for in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities". As required by SFAS 125, the Company adopted in the new
requirements effective January 1, 1997. Implementation of SFAS 125 did not have
any material impact on the financial statements of the Company.
New Accounting Pronouncements
In April 1998, Statement of Position ("SOP") 98-5, "Reporting on the Costs
of Start-Up Activities" was issued. This SOP provides guidance on the financial
reporting of start-up costs and organization costs. It requires the costs of
start-up activities and organization costs to be expensed as incurred. The SOP
is effective for financial statements for fiscal year beginning after December
15, 1998. The Company does not expect that the adoption of SOP No. 98-5 will
have a material impact on its financial statements.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued and is required to be adopted in years beginning
after June 15, 1999, which has been deferred to June 30, 2000. Management does
not anticipate that the adoption of the new statement will have a significant
effect on results of operations or the financial position of the Company.
10
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NOTE 2 -- Debentures Payable to SBA
At March 31, 2000 and June 30, 1999 debentures payable to the SBA consist
of subordinated debentures with interest payable semiannually, as follows:
Current
Effective Principal
Issue Date Due Date Interest Rate Amount
---------- -------- ------------- ------
September 1993 September 2003 6.12(1) $1,500,000
September 1993 September 2003 6.12 2,220,000
September 1994 September 2004 8.20 2,690,000
December 1995 December 2005 6.54 1,020,000
June 1996 June 2006 7.71 1,020,000
March 1997 March 2007 7.38(2) 430,000
----------
$8,880,000
==========
- ----------
(1) Interest rate was 3.12%from inception through September 1998
(2) The Company is also required to pay an additional annual user fee of 1% on
this debenture
Under the terms of the subordinated debentures, the Company may not
repurchase or retire any of its capital stock or make any distributions to its
stockholders other than dividends out of retained earnings (as computed in
accordance with SBA regulations) without the prior written approval of the SBA.
NOTE 3 -- Notes Payable to Banks
At March 31, 2000 and June 30, 1999, the Company had loan agreements with
three (3) banks for lines of credit aggregating $40,000,000 and $35,000,000,
respectively. At March 31, 2000 and June 30, 1999, the Company had $38,600,000
and $31,000,000, respectively, outstanding under these lines. The loans, which
mature through June 8, 2000, bear interest based on the Company's choice of the
lower of either the reserve adjusted LIBOR rate plus 150 basis points or the
bank's prime rates including certain fees which make the effective rates range
from approximately prime minus 1/4% to prime minus 1/2%. Upon maturity, the
Company anticipates extending the lines of credit for another year, as has been
the practice in previous years.
Pursuant to the terms of the agreements the Company is required to comply
with certain terms, covenants and conditions. The Company pledged its loans
receivable and other assets as collateral for the above lines of credit and were
not required to maintain compensating balances.
NOTE 4 -- Preferred Stock
Pursuant to a preferred stock repurchase agreement dated November 10, 1994,
the Company repurchased all cumulative preferred stock from the SBA for $3.50
per share, or an aggregate $1,915,449. As a condition precedent to the
repurchase, the Company granted the SBA a liquidating interest in a newly
established restricted capital surplus account. The surplus account is equal to
the amount of the net repurchase discount. The initial value of the liquidating
interest was $3,557,261, which is being amortized over a 60-month period on a
straight- line basis. Should the Company be in default under the repurchase
agreement at any time, the liquidating interest will become fixed at the level
immediately preceding the event of default and will not decline further until
such time as the default is cured or waived. The liquidating interest shall
expire on (i) sixty months from the date of the repurchase agreement, or (ii) if
any event of default has occurred and such default has been cured or waived,
such later date on which the liquidating interest is fully amortized. Should the
Company voluntarily or
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involuntarily liquidate prior to the amortization of the liquidating interest,
any assets which are available, after the payment of all debts of the Company,
shall be distributed first to the SBA until the fair market value of such assets
is equal to the amount of the liquidating interest. Such payment, if any, would
be prior in right to any payments made to the Company's stockholders. The amount
restricted under this agreement at March 31, 2000 and June 30, 1999 was
approximately $-0- and $256,916, respectively.
During 1992, the Company authorized the issuance of 752,729 shares of a new
Series B cumulative preferred stock with a 4 percent dividend and a $10 par
value. All preferred shares are restricted solely for issuance to the SBA. No
sales of the Series B preferred shares have occurred to date. On September 30,
1996, Congress passed a law that in effect prevents the SBA from making any
further purchase of 4% preferred stock from any specialized small business
investment company.
In September 1998, the stockholders of the Company approved and in February
1999 the SBA approved an amendment to the Certification of Incorporation of the
Company eliminating all of the authorized Series A and Series B preferred stock
of the Company. This amendment to the Certificate of Incorporation was filed and
became effective on May 21, 1999.
NOTE 5 -- Common Stock
On December 16, 1999, the company acquired Elk in a share-for-share
exchange. There are currently 5,000,000 shares authorized of $.0001 par value
common stock.
On April 17, 2000, The Company declared a cash dividend of $0.17 per common
share, for a total of $296,752 which was paid on May 5, 2000.
NOTE 6 -- Income Taxes
The provision for income taxes (benefit) for the periods ended March 31,
2000 and June 30, 1999, consists of the following:
March 31, 2000 June 30, 1999
--------------- -------------
Federal $2,063 $1,689
State and city 16,632 (2,458)
-------- --------
$18,695 $(769)
======== ========
The above provision represents income taxes incurred on undistributed income for
the respective years.
NOTE 7 -- Commitments and Contingencies
Interest Rate Swap
On June 8, 1998, the Company entered into a $10,000,000 interest rate Swap
transaction with a bank expiring on June 8, 2001. This Swap transaction was
entered into to protect the Company from an upward movement in interest rates
relating to outstanding bank debt. On October 13, 1998, the Company entered into
an additional interest rate Swap transaction with the same bank for $5,000,000
expiring on October 8, 2001. These Swap transaction were entered into to protect
the Company from an upward movement in interest rates relating to outstanding
bank debt (see Note 6 for terms and effective interest rates). These Swap
transaction call for a fixed rate of 5.86% and 4.95%, respectively for the
Company if the floating one month LIBOR rate is below the fixed rate then the
Company is obligated to pay the bank for the difference in rates. When the
one-month LIBOR rate is above the fixed rate then the bank is obligated to pay
the Company for the differences in rates.
On January 18, 2000, the Company entered into an additional interest rate
swap transaction for $10,000,000, with a
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bank expiring January 8, 2001. This swap transaction calls for a fixed rate of
6.57% plus 150 basis points or an effective rate of 8.07%
Interest Rate Cap
At March 20, 1997, the Company was a party to one $5 million notional
interest rate cap. This cap, which expired on March 20, 1999, was purchased by
the Company to protect it from the impact of upward movements in interest rates
related to its outstanding bank debt. The cap provided interest rate protection
on the event that the three-month LIBOR rate exceeded 6.75 percent. The premium
paid for the purchase of this cap was amortized over its life and recorded as an
adjustment to interest expense. Payments received under this cap would be
credited to interest expense.
Loan commitments
At March 31, 2000 and June 30, 1999, the Company had commitments to make
loans totaling approximately $1,505,000 and $4,058,000, at interest rate ranging
from 8.25% to 18%.
NOTE 8 -- Fair Value of Financial Instruments
The following disclosures represent the Company's best estimate of the fair
value of financial instruments, determined on a basis consistent with
requirements of Statement of Financial Accounting Standards, "SFAS" No. 107,
"Disclosure about Fair Value of Financial Instruments".
The estimated fair values of the Company's financial instruments are
derived using estimation techniques based on various subjective factors
including discount rates. Such estimates may not necessarily be indicative of
the net realizable or liquidation values of these instruments. Fair values
typically fluctuate in response to changes in market or credit conditions.
Additionally, valuations are presented as of a specific point in time and may
not be relevant in relation to the future earnings potential of the Company.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company will realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Loans Receivable -- The fair value of loans is estimated at cost net of the
allowance for loan losses. The Company believes that the rates of these loans
approximate current market rates.
Equity Securities -- The Company's equity securities as of March 31, 2000
consist of investments in corporations who own and operate Chicago Taxicab
Medallions (44%), a dry cleaner (5%), Miami Taxicab Medallions (5%) a
Telecommunications Company (37%), and an eyewear Internet company (9%).
Debentures Payable to Small Business Administration -- The fair value of
debentures as of March 31, 2000 and June 30, 1999 was approximately $8,989,000,
and were estimated by discounting the expected future cash flows using the
current rate at which the SBA has extended similar debentures to the Company.
The fair value of financial instruments that are short-term or reprice
frequently and have a history of negligible credit losses is considered to
approximate their carrying value. Those instruments include balances recorded in
the following captions:
ASSETS LIABILITIES
Cash Notes payable, banks
Accrued interest receivable Accrued interest payable
Assets acquired in satisfaction of loans
receivables from debtors on sales of
assets acquired in satisfaction of loans
13
<PAGE>
NOTE 9 -- Subsequent Event
On May 4, 2000, the company executed an Agreement and Plan of Merger with
Medallion Financial Corporation ("Medallion"), pursuant to which the Company
will merge into and with a wholly-owned subsidiary of Medallion (the
"Transaction"). The Transaction, which is structured to qualify as a
"pooling-of-interests" for accounting purposes, is subject to the approval of
the shareholders of the Company, the satisfactory completion of due diligence by
Medallion by July 4, 2000, approval of certain lenders, as well as the receipt
of certain approvals from the U.S. Small Business Administration, the U.S.
Department of Justice and the Federal Trade Commission and other customary
closing conditions. Subject to the foregoing conditions, the Transaction is
expected to close in the fourth quarter of 2000.
The Transaction is structured as a tax-free exchange of shares of common
stock of Medallion for each share of common stock of the Company. At Medallion's
closing common stock price of $16.50 on May 3, 2000, the Transaction would be
valued at approximately $17,000,000.
14
<PAGE>
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 10Q and the Company's Annual Report for the year ended June 30, 1999.
General
The Company is licensed by the Small Business Administration (SBA) to
operate as a Small Business Investment Company (SBIC) under the Small Business
Investment Act of 1958, as amended. The Company has also registered as an
investment company under the Investment Company Act of 1940.
The Company primarily makes loans and investments to persons who qualify
under SBA regulation as socially or economically disadvantaged and loans and
investments to entities which are at least 50% owned by such persons. The
Company also makes loans and investments to persons who qualify under SBA
regulation as "non-disadvantaged". The Company's primary lending activity is to
originate and service loans collateralized by New York City, Boston, Chicago and
Miami Taxicab Medallions. The Company also makes loans and investments in other
diversified businesses.
Results of Operations
For the Nine Months ended March 31, 2000 and 1999
Total investment income
The Company's investment income for the nine months ended March 31, 2000
increased to $5,096,577 from $4,100,967 (23.5%) for the nine month period ended
March 31, 2000 and March 31, 1999. This increase was mainly due to an increase
in the loan portfolio during the period. The portfolio increased from
$49,303,758 as of March 31, 1999 to $58,583,357 as of March 31, 2000, as part of
the Company's strategy to maximize shareholder rate of return by use of bank
debt. In addition, there was a gain on the sale of equity securities which
amounted to $166,917.
Operating Expenses
Interest expense for the nine month period ended March 31, 2000 increased
$628,900 ($2,433,497 from $1,804,597) over the similar period ended March 31,
1999. This increase was mainly due to increased bank borrowings for the period
and by higher interest rates for the period ended March 31, 2000.
Other operating expenses increased $288,148 when compared with the similar
period ended March 31, 1999. This increase was mainly due to an increase in
non-related legal fees generated from an increased investment in the Chicago
Medallion Market (this amount is offset by additional origination fee income).
In addition, the payroll costs and bad debts increased $52,170 and $68,665, when
compared with the prior period, respectively.
Results of Operations
For the Three Months ended March 31, 2000 and 1999
Total investment income
The Company's investment income for the three months ended March 31, 2000
increased to $1,822,169 from $1,406,021 or (29.5%) while compared with the three
month period ending March 31, 1999. This increase was mainly due to an increase
in the loan portfolio during the fiscal year. The portfolio increased from
$49,303,758 as of March 31, 1999 to $58,583,357 as of March 31, 2000, as part of
the Company's strategy to maximize shareholder rate of return by use of bank
debt. In addition, there was a gain on the sale of equity securities which
amounted to $90,748.
Operating Expenses
Interest expense for the three month period ended March 31, 2000 increased
$274,968 ($887,450 from $612,482) over the similar period ended March 31, 1999.
This increase was mainly due to increased bank borrowings for the period and by
higher interest rates for the period ended March 31,2000.
Other operating expenses increased $119,553 when compared with the similar
period ended March 31, 1999. This increase was due to a increase in bad debt
expenses which was $89,080 as of March 31, 2000 versus $52,500 for the similar
period ended March 31, 1999. In addition, the payroll costs and losses on assets
acquired increased 45,525 and $25,076 respectively during the period.
15
<PAGE>
Balance Sheet and Reserves
Total assets increased $7,321,401 as of March 31, 2000 when compared with
the balance sheet as of June 30, 1999. This increase was due to management's
decision to expand its portfolio in the Chicago Medallion Market plus increases
in the diversified loan portfolio. This expansion was financed by additional
bank debt of $7,600,000, during the nine month period.
16
<PAGE>
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: May 15, 2000 By: /s/ Gary C. Granoff
-------------------
Gary C. Granoff
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
17
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 139,868
<SECURITIES> 0
<RECEIVABLES> 58,583,357
<ALLOWANCES> (380,000)
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<PP&E> 420,038
<DEPRECIATION> 303,720
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<COMMON> 13,209,114
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