ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
(A Specialized Small Business Investment Company Licensed by the SBA)
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 1997 and 1996
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets 3-4
Statements of Income 5
Statements of Stockholders' Equity 6
Statements of Cash Flows 7-8
Schedule of Loans as of June 30, 1997 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10-20
<PAGE>
Marcum & Kliegman LLP
---------------------
Certified Public Accountants & Consultants
A Limited Liability Partnership Consisting of Professional Corporations
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Elk Associates Funding Corporation and Subsidiary
(A Specialized Small Business Investment Company Licensed by the SBA)
We have audited the accompanying consolidated balance sheet of Elk Associates
Funding Corporation and Subsidiary as of June 30 1997, including the schedule of
loans, and the related consolidated statements of income, stockholders' equity
and cash flows for the year then ended. These consolidated financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements and schedule present
fairly, in all material respects, the financial position of Elk Associates
Funding Corporation and Subsidiary as of June 30, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As explained in Note 1, the consolidated financial statements include loans
valued at $32,924,206 as of June 30, 1997, whose values have been estimated by
the Board of Directors in the absence of readily ascertainable market values. We
have reviewed the procedures used by the Board of Directors in arriving at their
estimate of the value of such loans and have inspected underlying documentation
and, in the circumstances, we believe the procedures are reasonable and the
documentation is appropriate. However, because of the inherent uncertainty of
valuation, those estimated values may differ significantly from the values that
would have been used had a ready market for such loans existed, and the
differences could be material.
-1-
130 Crossways Park Drive o Woodbury, New York 11797-2027 o
Tel 516-390-1000 o Fax 516-390-1001
Woodbury New York Greenwich
<PAGE>
The consolidated balance sheet of Elk Associates Funding Corporation and
Subsidiary as of June 30, 1996, and the related consolidated statements of
income, stockholders' equity, and cash flows for the year then ended were
audited by other auditors, whose report dated August 2, 1996, expressed an
unqualified opinion on those financial statements and included an explanatory
paragraph regarding the possible effect on the consolidated financial statements
of the valuation of loans determined by the Board of Directors.
August 15, 1997
-2-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996
ASSETS
------
1997 1996
------------ ------------
Loans receivable $ 33,249,206 $ 24,141,421
Less: allowance for loan losses (325,000) (301,000)
------------ ------------
32,924,206 23,840,421
Cash 1,853,032 1,072,783
Accrued interest receivable 408,165 294,087
Assets acquired in satisfaction of loans 581,810 426,922
Receivables from debtors on sales of
assets acquired in satisfaction of loans 488,493 525,290
Equity securities 436,181 234,900
Furniture, fixtures and leasehold
improvements - At cost, less accumulated
depreciation of $201,606 and $171,343,
respectively 90,214 101,948
Prepaid expenses and other assets 243,920 224,835
------------ ------------
TOTAL ASSETS $ 37,026,021 $ 26,721,186
============ ============
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
LIABILITIES
- -----------
Debentures payable to SBA $ 8,880,000 $ 8,858,000
Notes payable to banks 16,820,000 6,625,000
Accrued expenses and other liabilities 112,005 140,898
Accrued interest payable 181,248 196,453
----------- -----------
TOTAL LIABILITIES 25,993,253 15,820,351
----------- -----------
COMMITMENTS AND CONTINGENCIES
- -----------------------------
STOCKHOLDERS' EQUITY
- --------------------
Series A, 3 percent cumulative preferred stock, $10 par
value, 547,271 shares authorized, none outstanding -0- -0-
Series B, 4 percent cumulative preferred stock, $10 par
value, 752,729 shares authorized, none outstanding -0- -0-
Common stock, $.01 par value - 2,000,000 shares
authorized; 1,283,600 shares issued and outstanding 12,836 12,836
Additional paid-in-capital 8,890,993 8,179,545
Restricted capital 1,679,820 2,391,268
Retained earnings 365,878 317,186
Restricted retained earnings 25,000 -0-
Unrealized gain on equity securities 58,241 -0-
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 11,032,768 10,900,835
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $37,026,021 $26,721,186
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
INVESTMENT INCOME
- -----------------
Interest on loans receivable $ 3,660,825 $ 2,751,196
Fees and other income 374,088 333,216
----------- -----------
TOTAL INVESTMENT INCOME 4,034,913 3,084,412
----------- -----------
OPERATING EXPENSES
- ------------------
Interest 1,582,700 1,105,993
Management fees -0- 210,000
Salaries and employee benefits 469,060 220,476
Legal fees 307,127 186,023
Miscellaneous administrative expenses 604,347 468,606
Loss (gain) on assets acquired in satisfaction of loans, net 8,923 (44,292)
Directors' fee 27,500 23,400
----------- -----------
TOTAL OPERATING EXPENSES 2,999,657 2,170,206
----------- -----------
OPERATING INCOME 1,035,256 914,206
----------- -----------
OTHER INCOME (EXPENSES)
- -----------------------
Gain on sale of security 25,000 -0-
Net loss from rental activities (11,233) -0-
----------- -----------
TOTAL OTHER INCOME 13,767 -0-
----------- -----------
NET INCOME BEFORE INCOME TAXES 1,049,023 914,206
INCOME TAXES 28,676 5,945
- ------------ ----------- -----------
NET INCOME $ 1,020,347 $ 908,261
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,283,600 1,247,120
=========== ===========
NET INCOME PER COMMON SHARE $ 0.79 $ 0.73
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Series A Series B
Shares of Preferred Preferred Shares of Common
Preferred Stock - 3% Stock - 4% Common Stock
Stock Cumulative Cumulative Stock $0.1 Par
Outstanding $10 Par $10 Par Outstanding Value
----------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1995 547,271 $5,472,710 $-0- 1,033,683 $10,337
- -------
Proceeds from issuance of
common stock -0- -0- -0- 249,917 2,499
Redemption of preferred
stock (547,271) (5,472,710) -0- -0- -0-
Capitalization of retained
earnings -0- -0- -0- -0- -0-
Transfer of restricted
capital -0- -0- -0- -0- -0-
Dividends paid -0- -0- -0- -0-
Net income -0- -0- -0- -0- -0-
---------- ----------- ---- ---------- --------
BALANCE, June 30, 1996 -0- -0- -0- 1,283,600 12,836
- -------
Transfer of restricted
capital -0- -0- -0- -0- -0-
Dividends paid -0- -0- -0- -0- -0-
Net income -0- -0- -0- -0- -0-
Unrealized gain on equity
securities -0- -0- -0- -0- -0-
---------- ----------- ---- ---------- --------
BALANCE, June 30, 1997 -0- $ -0- $-0- 1,283,600 $12,836
- ------- ========== =========== ==== ========== ========
<CAPTION>
Unrealized
Additional Restricted Gain on
Paid-In Restricted Retained Retained Equity
Capital Capital Earnings Earnings Securities Total
---------- ----------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 1, 1995 $5,480,948 $ -0- $652,953 $ -0- $ -0- $11,616,948
- -------
Proceeds from issuance of
common stock 1,225,604 -0- -0- -0- -0- 1,228,103
Redemption of preferred
stock -0- 3,557,261 -0- -0- -0- (1,915,449)
Capitalization of retained
earnings 307,000 -0- (307,000) -0- -0- -0-
Transfer of restricted
capital 1,165,993 (1,165,993) -0- -0- -0- -0-
Dividends paid -0- -0- (937,028) (937,028)
Net income -0- -0- 908,261 -0- -0- 908,261
----------- ----------- --------- --------- --------- ------------
BALANCE, June 30, 1996 8,179,545 2,391,268 317,186 -0- -0- 10,900,835
- -------
Transfer of restricted
capital 711,448 (711,448) -0- -0- -0- -0-
Dividends paid -0- -0- (946,655) -0- -0- (946,655)
Net income -0- -0- 995,347 25,000 -0- 1,020,347
Unrealized gain on equity
securities -0- -0- -0- -0- 58,241 58,241
----------- ----------- --------- -------- --------- -------------
BALANCE, June 30, 1997 $8,890,993 $1,679,820 $365,878 $25,000 $58,241 $11,032,768
- ------- =========== =========== ========= ======== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income 1,020,347 $ 908,261
------------ ------------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 53,546 25,483
Gain on sale of security (25,000) -0-
Increase in accrued interest receivable (114,078) (53,866)
Increase in prepaid expenses and other assets (27,318) (30,240)
Decrease in accrued expenses and other liabilities (28,893) (6,820)
(Decrease) increase in accrued interest payable (15,204) 12,519
------------ ------------
TOTAL ADJUSTMENTS (156,947) (52,924)
------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 863,400 855,337
------------ ------------
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 (9,062,902) (775,581)
Payments for building improvements on assets
acquired in satisfaction of loans (13,974) -0-
Purchases of equity securities (243,040) (234,900)
Acquisition of furniture, fixtures and leasehold
improvements (18,530) (16,200)
------------ ------------
NET CASH USED IN INVESTING ACTOVITIES (9,338,446) (1,026,681)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from notes payable to banks 25,295,000 1,975,000
Repayments of notes payable to banks (15,100,000) (300,000)
Payments for loan costs (15,050) -0-
Proceeds from debentures payable to SBA 430,000 2,040,000
Repayment of debentures payable to SBA (408,000) (1,986,000)
Proceeds from sale of common stock -0- 1,228,103
Repurchase of preferred stock -0- (1,915,449)
Dividends paid (946,655) (937,028)
------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES $ 9,255,295 $ 104,626
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For the Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH $ 780,249 $ (66,718)
CASH - Beginning 1,072,783 1,139,501
- ---- ----------- -----------
CASH - Ending $ 1,853,032 $ 1,072,783
- ---- =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- --------------------------------------------------
Cash paid during the years for:
Interest $ 1,597,904 $ 1,093,474
Income taxes $ 31,260 $ -0-
Noncash investing and financing activities:
Conversion of loans to assets acquired in
satisfaction of loans $ 140,914 $ 9,000
Exchange of preferred stock for a note resulting in
a noncash gain of $25,000 $ 125,000 $ -0-
Unrealized gain on equity securities $ 58,241 $ -0-
Transfer of restricted capital $ 711,448 $ 1,165,993
</TABLE>
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
SCHEDULE OF LOANS
June 30, 1997
<TABLE>
<CAPTION>
Maturity
Type of Loan Number Interest Dates Balance
- ------------ of Loans Rates (In Months) Outstanding
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
New York City:
Taxi medallion 117 9.25%-14% 1-119 $17,260,488
Radio car service 60 1-15% 1-59 369,111
Chicago:
Taxi medallion 325 12-16% 27-48 9,488,724
Boston:
Taxi medallion 20 11-14% 39-72 1,029,997
Miami:
Taxi medallion 22 13.75% 117-120 1,122,471
Other loans:
Restaurant 2 10.5-12% 1-78 273,027
Gas station/auto repair 1 12% 1-48 99,211
Hairdresser 2 12% 12 144,315
Car wash 1 11.5% 48 225,103
Ambulance service 1 10.5% 18 15,623
Bagel store 1 14% 54 36,132
Dry cleaner 7 10-13% 66 729,864
Laundromat 1 15% 35 38,945
Grocery/deli 5 12.50-14% 36-69 1,158,739
Financial services 1 14% 1 50,000
Black car service (real property) 1 12% 107 296,090
Auto sales 3 10.50-13% 1-60 731,366
Registered investment advisor 1 14% 108 180,000
--- -----------
Total Loans Receivable 571 $33,249,206
=== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-9-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Summary of Significant Accounting Policies
Organization and Principal Business Activity
Elk Associates Funding Corporation (the "Company"), a New York corporation,
is licensed by the Small Business Administration ("SBA") to operate as a
Specialized Small Business Investment Company ("SSBIC") 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 regulations as socially or economically disadvantaged and loans
and investments to entities which are at least 50 percent owned by such
persons.
Effective February 21, 1997, the SBA approved the Company's election to
provide nondisadvantaged business financing to small business concerns
pursuant to SBA regulations and letter of agreement with the Company (see
Note 11).
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. Approximately 87% 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 No.114, "Accounting
by Creditors for Impairment of a Loan" ("SFAS 114"), 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. SFAS 114 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
-10-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Summary of Significant Accounting Policies, continued
Accounting Standard for Impairment of Loans, continued
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. See Note 3 for further
discussion.
Loans Receivable
Loans are placed on nonaccrual status once they become 180 days past due as
to principal or interest. In addition, loans that are not fully
collateralized and in the process of collection are placed on nonaccrual
status when, in the judgement of management, the ultimate collectibility of
interest and principal is doubtful.
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 shareholders. 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 shareholders as well as meet other
requirements under the Code. In order to preserve this election for fiscal
1997, the Company intends to make the required distributions to its
shareholders 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
Net income per share is determined by dividing net income by the weighted
average number of shares outstanding during the period. All net income per
share amounts have been restated to give effect to the extinguishment of
all cumulative preferred stock dividends in arrears as a result of the
preferred stock repurchase discussed in Note 7.
Loan Costs
Loan costs are included in prepaid expenses and other assets. Amortization
of loan costs is computed on the straight-line method over ten (10) years.
At June 30, 1997, loan costs amounted to $178,241, net of accumulated
amortization of $65,750. Amortization expense for the year ended June 30,
1997 is $23,283.
-11-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Summary of Significant Accounting Policies, continued
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.
Interest Rate Cap
At March 20, 1997, the Company was a party to one $5 million notional
interest rate cap. This cap was purchased by the Company to protect it from
the impact of upward movements in interest rates related to its outstanding
bank debt, expiring March 20, 1999. The cap provided interest rate
protection in 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 as an adjustment of interest expense. Payments received under this
cap would be credited to interest expense.
Consolidation
The consolidated financial statements include the accounts of EAF Holding
Corporation ("EAF"), a wholly-owned subsidiary of the Company. All
intercompany transactions have been eliminated. EAF was formed in June 1992
and began operations in December 1993. The purpose of EAF is to own and
operate certain real estate assets acquired in satisfaction of loans.
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.
Reclassification
Certain accounts in the prior year financial statements have been
reclassified for comparative purposes to conform with the presentation in
the current year financial statements. These reclassifications have no
effect on previously reported income.
NOTE 2 - Assets Acquired in Satisfaction of Loans
During the years ended June 30, 1997 and 1996, the carrying value of Assets
Acquired in Satisfaction of Loans increased by additions of approximately
$141,000 and $9,000, and decreased by sales and cash payments of
approximately $-0- and $424,000 and write-offs of approximately $-0- and
$23,000, respectively.
-12-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - Assets Acquired in Satisfaction of Loans, continued
Sales of assets acquired in satisfaction of loans for the years ended June
30, 1997 and 1996, included approximately $0 and $388,000 of real estate
and $0 and $36,000 of radio car rights, respectively.
Receivables from Debtors on Sales of Assets Acquired in Satisfaction of
Loans represent loans to borrowers arising out of the sales of defaulted
assets. Pursuant to an SBA regulation, these loans are presented separately
in the accompanying consolidated balance sheets.
NOTE 3 - Loans Receivable
All loans on nonaccrual status have been classified as impaired. The
Company recognizes interest income on a cash basis on these loans if the
principal is fully secured. However, where there is doubt regarding the
ultimate collectibility of the loan principal, cash receipts, whether
designated as principal or interest, are applied to reduce the carrying
value of the loan. The Company has loans totaling approximately $87,000 and
$592,000 at June 30, 1997 and 1996, respectively, which are still accruing
interest but are not performing according to the terms of the contract and
accordingly these loans are impaired under SFAS 114. At June 30, 1997 and
1996, approximately $41,000 and $443,000, respectively, of these loans were
fully collateralized as to principal and interest. Interest income recorded
during the years ended June 30, 1997 and 1996 totaled approximately $3,000
and $83,000, respectively, for such loans.
The following table sets forth certain information concerning impaired
loans as of June 30, 1997 and 1996:
1997 1996
-------- --------
Impaired loans with an allowance $260,127 $250,543
Impaired loans without an allowance 41,227 443,143
-------- --------
Total impaired loans $301,354 $693,686
======== ========
Allowance for impaired loans $178,000 $154,000
======== ========
Average balance of impaired loans $497,521 $484,332
======== ========
-13-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - Loans Receivable, continued
Transactions in the allowance for loan losses are summarized as follows:
Balance, July 1, 1995 $277,000
Recoveries - net 24,000
---------
Balance, June 30, 1996 301,000
Recoveries - net 24,000
---------
Balance, June 30, 1997 $325,000
========
At June 30, 1997 and 1996, the Company had commitments to make loans
totaling $1,190,282 and $1,987,050, respectively, at interest rates ranging
from 9.5% to 16%.
NOTE 4 - Equity Securities
Equity securities consist of the following as of June 30, 1997:
<TABLE>
<CAPTION>
Chicago Miami Investment Dry Grocery
Taxicab Taxicab Advisory Cleaner and
Medallions Medallions Firm Company Market Total
---------- ---------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 $ 200,900 $ -0- $ 20,000 $ 14,000 $ -0- $ 234,900
Purchase of securities 121,825 21,215 -0- -0- 100,000 243,040
Sale of securities -0- -0- -0- -0- (100,000) (100,000)
Unrealized gain 58,241 -0- -0- -0- -0- 58,241
--------- -------- -------- -------- -------- ---------
Balance, June 30, 1997 $ 380,966 $ 21,215 $ 20,000 $ 14,000 $ -0- $ 436,181
========= ======== ======== ======== ======== =========
</TABLE>
At June 30, 1997, the fair value of the Chicago Taxicab Medallions was
increased resulting in an unrealized gain. The fair value of the other
equity securities approximates cost. At June 30, 1996, the fair value of
the equity securities approximated cost.
-14-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - Debentures Payable to SBA
At June 30, 1997 and 1996 debentures payable to the SBA consist of
subordinated debentures with interest payable semiannually, as follows:
<TABLE>
<CAPTION>
Current 1997 1996
Effective Principal Principal
Issue Date Due Date Interest Rate Amount Amount
------------------ ----------------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
March 1987 March 1997 7.125 $ -0- $ 408,000
September 1993 September 2003 3.12(1) 1,500,000 1,500,000
September 1993 September 2003 6.12 2,220,000 2,220,000
September 1994 September 2003 8.20 2,690,000 2,690,000
December 1995 December 2005 6.54 1,020,000 1,020,000
June 1996 June 2006 7.71 1,020,000 1,020,000
March 1997 March 2007 7.38(2) 430,000 -0-
---------- -----------
$8,880,000 $8,858,000
========== ==========
</TABLE>
(1) Interest rate increases to 6.12% on September 30, 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 6 - Notes Payable to Banks
The Company has loan agreements with four banks for lines of credit
aggregating $20,000,000. At June 30, 1997, the Company had $16,820,000
outstanding under these lines. The loans, which mature through November 30,
1997, bear interest based on the banks' prime rates and include 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.
At June 30, 1996 the Company also had loan agreements with four banks for
lines of credit aggregating $14,000,000. At June 30, 1996, the Company had
$6,625,000 outstanding under these lines. The loans, which matured through
November 30, 1996, beared interest on the banks' prime rates and include
certain fees which made the effective rates range from prime to prime minus
1/2%.
-15-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - Notes Payable to Banks, continued
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
is required to maintain compensating balances equal to 10% of loan balance
outstanding with each individual bank. At June 30, 1997 and 1996, average
compensating balances of $1,682,000 and $662,500, respectively, were
maintained by the Company in accordance with these agreements.
NOTE 7 - Preferred Stock
At June 30, 1995, the Company had 547,271 shares of 3 percent preferred
stock issued to the SBA. Cumulative dividends not declared or paid as of
June 30, 1995 were approximately $533,000. During August 1995, the Company
completed the repurchase of all such shares of preferred stock from the SBA
pursuant to a preferred stock repurchase agreement dated November 10, 1994.
Pursuant to this agreement, the Company repurchased all 547,271 shares of 3
percent cumulative preferred stock from the SBA for $3.50 per share, or an
aggregate of $1,915,449. The repurchase price was at a substantial discount
to the original issuance price of $10 per share. In connection with the
repurchase, all dividends in arrears on the preferred shares were
extinguished.
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 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 shareholders. The amount
restricted under this agreement at June 30, 1997 and 1996 was approximately
$1,680,000 and $2,391,000, respectively.
-16-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - Preferred Stock, continued
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. Accordingly, the Company does not
anticipate being able to sell any of its authorized Series B Cumulative
Preferred Stock in the future.
NOTE 8 - Common Stock
On July 21, 1997, the Company declared a cash dividend of $0.18 per common
share, or a total of $231,048, and paid August 4, 1997.
During September 1995, the Company completed the sale of 249,917 shares of
common stock and restricted $307,000 of its 1995 earnings in order to
qualify for participation in the SBA's 3 percent Preferred Stock Repurchase
Program. Total capital raised during this sale was $1,249,585 less private
placement costs of $21,482. These proceeds together with other capital
raised in 1994 were used to repurchase the Company's preferred stock held
by the SBA (see Note 7).
NOTE 9 - Income Taxes
The provision for income taxes for the years ended June 30, 1997 and 1996
consists of the following:
1997 1996
------- ------
Federal $ 4,568 $2,899
State and city 24,108 3,046
------- ------
$28,676 $5,945
======= ======
NOTE 10 - Related Party Transactions/Commitments
Prior to January 1, 1996, the Company was a party to a management agreement
with GCG Associates, Inc. ("GCG"), a company that is wholly-owned by the
president of the Company, to engage GCG as its investment advisor. The
agreement which was approved by the SBA, required that GCG, as advisor,
maintain sufficient personnel and pay certain
-17-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - Related Party Transactions/Commitments, continued
expenses necessary to operate the Company's business, maintain an office on
behalf of the Company, collect all loans receivable due from recipients of
loans and comply with all official orders of government agencies, including
the SBA.
Subject to the overall control and supervision of the Board of Directors of
the Company, the advisor was also responsible for reviewing all loan
applications, implementing the lending policies decided upon by the Board
of Directors of the Company and investing excess liquid assets of the
Company.
Under the management agreement, the monthly compensation to the advisor was
computed as one-twelfth of 2 percent of the total assets of the Company as
of the last day of the month immediately preceding such computation,
provided that the amount computed thereby shall not in any event exceed
one-twelfth of the Company's private invested capital and capitalized
retained earnings multiplied by 8 percent (as those terms are defined by
SBA regulations) plus one-twelfth of 1 percent of any third-party bank
financing outstanding on such date, not to exceed the maximum management
fees previously approved by the SBA.
The management agreement with GCG was terminated on December 31, 1995.
Effective January 1, 1996, all salary and employee benefit, occupancy and
administrative expenses are paid directly by the Company. These expenses
are included in salaries and benefits expense and miscellaneous
administrative expenses in the statements of income for the years ended
June 30, 1997 and 1996. In addition, $210,000 of management fees were paid
in according with this agreement during the period July 1, 1995 to December
31, 1995, the termination date of the agreement.
Prior to January 1, 1996, the Company paid an annual legal retainer fee for
the purposes of providing loan closing services to a firm, certain of whose
officers are officers and directors of the Company. Effective January 1,
1996, the legal fee retainer being paid to the above referenced law firm
was terminated, and legal services related to New York taxi and black car
loan closings are being provided by the officers and employees of the
Company. Closing fees related to all other loans are paid by the Company
based on a fixed or hourly fee. $43,645 and $102,902 was paid to this law
firm during the years ended June 30, 1997 and 1996, respectively, for the
services provided. The Company generally charges its borrowers loan
origination fees to generate income to offset expenses incurred by the
Company for legal fees paid by the Company for loan closing services.
The Company rents office space on a month-to-month basis from an affiliated
entity without a formal lease agreement. Rent expense amounted to $39,600
for both years ended June 30, 1997 and 1996.
-18-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - Regulatory Matters
In accordance with a Stipulation of Compliance dated January 25, 1993
between the Company and the SBA, the Company has appointed an Audit and
Compliance Committee, consisting of officers and directors of the Company,
which is responsible for monitoring and coordinating the Company's
adherence with SBA regulations.
The Company entered into an agreement with the SBA, subject to certain
regulatory limitations, on September 9, 1993. As part of the agreement, the
Company agreed to limit the aggregate amount of its senior indebtedness,
consisting of bank debt and the SBA debentures, to certain specific levels
based upon performing assets; the Company agreed to grant the SBA a
subordinate lien on the Company's assets and to have the Company's notes
maintained by a separate custodian; and the Company agreed to provide
periodic financial reports to the SBA on a quarterly basis.
Effective February 21, 1997, the SBA approved the Company's election to
provide nondisadvantaged business financing to small business concerns
pursuant to SBA regulations and letter of agreement with the Company,
subject to amending the Company's certificate of incorporation to make such
financings. The Company's shareholders approved the amendment to the
certificate of incorporation, which amendment was filed on February 27,
1997 (see Note 1).
NOTE 12 - 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 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 (see Note 3).
-19-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - Fair Value of Financial Instruments, continued
Equity Securities - The Company's equity securities consist of investments
in corporations who own and operate Chicago taxicab medallions (85%), an
investment advisory firm (5%), a dry cleaner (4%), and Miami taxicab
medallions (6%) (see Note 4).
Debentures Payable to Small Business Administration - The fair value of
debentures as of June 30, 1997 was approximately $8,650,000 and was
estimated by discounting the expected future cash flows using the current
rate at which the SBA has extended similar debentures to the Company (see
Note 5).
The fair value of financial instruments that are short-term or reprice
frequently and have a history of negligible credit losses is considered to
approximate their carrying value. Those instruments include balances
recorded in the following captions:
ASSETS LIABILITIES
---------------------------------------- ------------------------
Cash Notes payable, banks
Accrued interest receivable Accrued interest payable
Assets acquired in satisfaction of loans
Receivables from debtors on sales of
assets acquired in satisfaction of loans
NOTE 13 - Defined Contribution Plan
On April 15, 1996 the Company adopted a simplified employee pension plan
covering all eligible employees of the Company. Contributions to the plan
are at the discretion of the Board of Directors. During the years ended
June 30, 1997 and 1996, contributions amounted to $58,805 and $24,551,
respectively.
NOTE 14 - Litigation
The Company is a third party defendant in a lawsuit for damage to property
located in a building which was subsequently acquired by the Company in
satisfaction of loans. The Company believes that it has no legal liability
in this matter and that the resolution of this matter will not have a
material adverse effect, if any, on the financial position of the Company.
In addition, the Company believes that there is adequate insurance coverage
to satisfy any judgement which may be obtained against the Company or any
settlement of this lawsuit. The Company's insurance carrier is presently
defending the case on behalf of the Company and the claimed damage is
within the Company's insurance policy limit.
-20-
ELK ASSOCIATES FUNDING CORPORATION 747 Third Avenue
New York, New York 10017
212-355-2449 800-214-1047
Fax 212-759-3338
A FEDERAL LICENSEE UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958
- --------------------------------------------------------------------------------
August 29, 1997
Dear Stockholders:
Enclosed with this letter you will find a Press Release dated August 29,
1997, together with a copy of our annual audited financial statements for the
year ended June 30, 1997. The Press Release summarizes our continued financial
developments, and highlights some of the important achievements that we have
accomplished during the past fiscal year.
The Board of Directors and management are very pleased with the progress we
are making in increasing our earnings along with the amount of increase in our
loan portfolio and asset base. During the fiscal year our earnings increased 15%
to a pre-tax level of $1,049,023 at June 30, 1997 vs $914,206 at June 30, 1996.
In addition, the earnings at June 30, 1996 contained certain one-time recoveries
from sales of defaulted assets acquired that did not repeat in fiscal 1997, and
accordingly, our earnings growth was actually over 20% year to year. Total
investment income increased 31% to $4,034,913 for fiscal year June 30, 1997
which was substantially in excess of the $3,084,412 received during fiscal year
ended June 30, 1996.
Our Loan portfolio grew 38% (over a $9,000,000 increase) in the last fiscal
year to $32,924,206 at June 30, 1997 from $23,840,421 at June 30, 1997. Total
assets also increased 38% (over a $10,000,000 increase) to $37,026,021 at June
30, 1997 from $26,721,186 at June 30, 1996.
Our earnings at June 30, 1997 after income tax was $1,020,347, which
consisted of realized cash earnings of $995,347 and non cash gains from the sale
of a preferred stock to a borrower in exchange for a debt instrument of $25,000.
Furthermore, our balance sheet now also reflects unrealized appreciation (at
June 30, 1997) on our equity investments in the common stock of certain
corporations that own Chicago taxi medallions. The amount of unrealized
appreciation at June 30, 1997 was recorded at $58,241.
During the fiscal year ended June 30, 1997, the Company also refinanced an
SBA Debenture in the amount of $408,000 that matured in March, 1997 by selling a
new debenture guaranteed by SBA in the amount of $430,000. In addition, the
common stockholders paid in capital increased by an additional $711,448 as a
result of the reduction of the SBA's interest in the restricted capital account.
The remaining balance of $1,679,820 in the SBA's restricted capital account will
continue to decrease, and the Company's additional paid in capital account will
continue to increase at the rate of $59,287 per month until November, 1999 when,
provided the Company remains in compliance with applicable SBA requirements, the
restricted capital account is scheduled to be zero.
During the fiscal year ended June 30, 1997, the Company was able to
increase its credit lines with commercial banks to
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION 747 Third Avenue
New York, New York 10017
212-355-2449 800-214-1047
Fax 212-759-3338
A FEDERAL LICENSEE UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958
- --------------------------------------------------------------------------------
Letter to Stockholders
August 29, 1997
Page 2
$20,000,000 from $14,000,000 at June 30, 1996. The Company also substantially
increased the amount utilized under these lines by increasing outstanding bank
debt to $16,820,000 at June 30, 1997 from $6,625,000 at June 30, 1996. The
substantial increase in bank debt was primarily utilized to increase the size of
our loan and investment portfolio, and to allow us to be in compliance with our
compensating balance requirements that we are required to maintain with our
banks. Due to the compensating balance requirements, our cash position increased
to $1,853,032 at June 30, 1997 from $1,072,783 at June 30, 1996.
During the fiscal year ended June 30, 1997, the Company distributed cash
dividends of .18 cents per share in July, 1996 (as a part distribution of
earnings from the fourth quarter of the fiscal year ended June 30, 1996; 20.75
cents per share in September, 1996 consisting of 6.75 cents per share final
distribution of earnings from the fiscal year ended June 30, 1996, and .14 cents
per share on account of the first quarter of fiscal year ending June 30, 1997.
Thereafter, dividends were paid at the rate of .17 cents per share in December,
1996, and .18 cents in April, 1997. A dividend of .18 cents per share for the
fourth quarter of the fiscal year was paid in August, 1997. We have calculated
that a final dividend of approximately .10 cents per share should be declared by
the Board of Directors at the next meeting in order to pay out the amount of
remaining retained earnings earned during the fiscal year. We would expect that
this dividend will be paid at the end of September, or in early October, 1997.
Accordingly, on an accrual basis, and after payment of a final anticipated
dividend of .10 cents per share, the Company will have paid out .77 cents per
share from realized earnings for the fiscal year ended June 30, 1997.
During the fiscal year ended June 30, 1997, the Company also was able to
amend its Certificate of Incorporation and enter into an agreement with SBA
whereby the Company is allowed to make loans and investments into small business
concerns that are not owned by persons who are socially or economically
disadvantaged individuals. The Company believes that this change will open many
opportunities to the Company that it was previously unable to consider due to
its license requirements with SBA.
We are pleased to be able to report the above results.
Sincerely yours,
/s/ Gary C. Granoff
-------------------
Gary C. Granoff, President
ELK ASSOCIATES FUNDING CORPORATION 747 Third Avenue
New York, New York 10017
212-355-2449 800-214-1047
Fax 212-759-3338
A FEDERAL LICENSEE UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958
- --------------------------------------------------------------------------------
PRESS RELEASE
New York, New York
August 29, 1997
Elk Associates Funding Corporation announced today that its financial
results for the fiscal year ending June 30, 1997 are being filed with the US
Securities and Exchange Commission on Form NSAR, and the full financial
statements are being filed in the Commission's EDGAR reporting data files.
The Company announced that it has continued to make substantial progress in
its business operations, its diversification strategy, the expansion of its loan
and investment portfolio, its financial standing, and level of profitability.
The Company announced a substantial increase in the earnings for fiscal
year ended June 30, 1997 over that of fiscal year ended June 30, 1996. The
Company announced that it also had substantial growth in its loan portfolio and
asset base. During the fiscal year the Company's net earnings increased 15% to a
pre-tax level of $1,049,023 at June 30, 1997 vs $914,206 at June 30, 1996. In
addition, the earnings at June 30, 1996 contained certain one-time recoveries
from sales of defaulted assets acquired that did not repeat in fiscal 1997, and
accordingly, the Company's earnings growth from continuing operations was
actually more than a 20% increase year to year. Total investment income
increased 31% to $4,034,913 for fiscal year June 30, 1997 which was
substantially in excess of the $3,084,412 received during fiscal year ended June
30, 1996.
The Company's Loan portfolio grew 38% (over a $9,000,000 increase) in
the last fiscal year to $32,924,206 at June 30, 1997 from $23,840,421 at June
30, 1996. Total assets also increased 38% (over $10,000,000) to $37,026,021 at
June 30, 1997 from $26,721,186 at June 30, 1996. The Company announced that its
portfolio of taxi medallion loans in New York City was $17,260,487 at June 30,
1997, an increase of 4% over the portfolio of $16,586,681 at June 30, 1996. The
Company further announced that the largest increase in its loan portfolio came
from the increase in its Chicago taxi medallion loan portfolio. The Chicago taxi
medallion loan portfolio increased by a net increase of $5,787,349 or 255% to
$9,511,105 at June 30, 1997 from $3,723,756 at June 30, 1996. The Company
further announced that its Boston taxi medallion portfolio increased
approximately 17% to $1,029,996 at June 30, 1997 from $883,323 at June 30, 1996.
The Company also announced that it had successfully diversified into the Dade
County (Miami)
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION 747 Third Avenue
New York, New York 10017
212-355-2449 800-214-1047
Fax 212-759-3338
A FEDERAL LICENSEE UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958
- --------------------------------------------------------------------------------
PRESS RELEASE
PAGE 2
Florida taxi medallion market, and had created a new portfolio during the fiscal
year of $1,122,471 from no portfolio at June 30, 1996. The Company also has made
equity investments and owns a 12% equity position in approximately 22 Dade
County taxi licenses at June 30, 1997. The Company also announced that it was
continuing to increase its loan and investment portfolio of loans outside of the
taxi medallion industry on a selective basis, and that its diversified loan
portfolio increased 69% to $3,974,971 at June 30, 1997 from $2,355,506 at June
30, 1996.
The Company announced that its earnings at June 30, 1997 after income tax
was $1,020,347, which consisted of realized cash earnings of $995,347 and non
cash gains from the sale of a preferred stock to a borrower in exchange for a
debt instrument of $25,000. Furthermore, the Company's balance sheet now also
reflects unrealized appreciation (at June 30, 1997) on its equity investments in
the common stock of certain corporations that own Chicago taxi medallions. The
amount of unrealized appreciation at June 30, 1997 was recorded at $58,241.
During the fiscal year ended June 30, 1997, the Company also refinanced an
SBA debenture in the amount of $408,000 that matured in March, 1997 by selling a
new debenture guaranteed by SBA in the amount of $430,000. In addition, the
common stockholders paid in capital increased by an additional $711,448 as a
result of the reduction of the SBA's interest in the restricted capital account.
The remaining balance of $1,679,820 in the SBA's restricted capital account will
continue to decrease, and the Company's additional paid in capital account will
continue to increase, at the rate of $59,287 per month until November, 1999
when, provided the Company remains in compliance with applicable SBA
requirements, the restricted capital account is scheduled to be zero.
During the fiscal year ended June 30, 1997, the Company was able to
increase its credit lines with commercial banks to $20,000,000 from $14,000,000
at June 30, 1996. The Company also substantially increased the amount utilized
under these lines by increasing outstanding bank debt to $16,820,000 at June 30,
1997 from $6,625,000 at June 30, 1996. The substantial increase in bank debt was
primarily utilized to increase the size of the Company's loan and investment
portfolio, and to allow the Company to be in compliance with its compensating
balance requirements that the Company is required to maintain with its banks.
Due to the compensating balance requirements, the Company's cash position
increased to $1,853,032 at June 30, 1997 from $1,072,783 at June 30, 1996.
During the fiscal year ended June 30, 1997, the Company
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION 747 Third Avenue
New York, New York 10017
212-355-2449 800-214-1047
Fax 212-759-3338
A FEDERAL LICENSEE UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958
- --------------------------------------------------------------------------------
PRESS RELEASE
PAGE 3
distributed cash dividends of .18 cents per share in July, 1996 (as a part
distribution of earnings from the fourth quarter of the fiscal year ended June
30, 1996; 20.75 cents per share in September, 1996 (consisting of 6.75 cents per
share final distribution of earnings from the fiscal year ended June 30, 1996),
and .14 cents per share on account of the first quarter of fiscal year ending
June 30, 1997. Thereafter, dividends were paid at the rate of .17 cents per
share in December, 1996, and .18 cents in April, 1997. A dividend of .18 cents
per share for the fourth quarter of the fiscal year was paid in August, 1997.
Management has calculated that a final dividend of approximately .10 cents per
share should be declared by the Board of Directors at the next meeting in order
to pay out the amount of remaining retained earnings earned during the fiscal
year, in order to be in compliance with applicable tax regulations concerning
Regulated Investment Companies. Management expects that this dividend will be
declared during September, 1997 and paid at the end of September, or in early
October, 1997. Accordingly, on an accrual basis, and after payment of a final
anticipated dividend of .10 cents per share, the Company will have paid out .77
cents per share from realized earnings for the fiscal year ended June 30, 1997.
The Company believes that its business prospects at the present time are
excellent and that it will continue to finance New York City, Chicago, Boston
and Miami taxi medallion owners as its principal source of loans. The Company
also expects to continue to finance diversified businesses as opportunities
arise that meet the Company's loan and investment criteria by utilizing a
combination of loans and equity investments. During the fiscal year ended June
30, 1997, the Company also was able to amend its Certificate of Incorporation
and enter into an agreement with SBA whereby the Company will be allowed to make
loans and investments into small business concerns that are not owned by persons
who are socially or economically disadvantaged individuals. The Company believes
that this change will open many opportunities to the Company that it was
previously unable to consider due to its license requirements with SBA.
Elk Associates Funding Corporation is a Specialized Small Business
Investment Company licensed by the United States Small Business Administration.
The Company was licensed by the SBA in 1980. The Company's shares are listed in
the Pink Sheets under the symbol "EKFG". The Company maintains its offices at
747 Third Avenue, 4th Floor, New York, New York 10017. The contact person is
Gary C. Granoff, President. The Company's telephone number is 1-212-355-2449 or
1-800-214-1047. The Company's fax number is 1-212-759-3338.
