SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended September 30, 1998
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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ELK ASSOCIATES FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
New York 11-2502336
(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 $.01 per share, outstanding
as of November 16, 1998: 1,745,600
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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, 1998.
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 Three Months ended September 30, 1998 and 1997.
Total investment income. Elk's investment income for the three months ended
September 30, 1998 increased to $1,349,000 from $1,081,000 or (24.6%) for the
three month period ended September 30, 1998 and September 30, 1997. This
increase was mainly due to an increase in the loan portfolio during the fiscal
year. The portfolio increased from $33,354,000 as of September 30, 1997 to
$45,196,000 as of September 30, 1998, as part of the Company's strategy to
maximize shareholder rate of return by use of bank debt.
Operating Expenses
Interest expense for the three month period ended September 30, 1998
increased $84,000 ($574,000 from $490,000) over the similar quarter ended
September 30, 1997. This increase was mainly due to increased bank borrowings
for the period offset by lower interest rates for the three months ended
September 30,1998.
Other operating expenses increased $104,000 when compared with the similar
three month period ended September 30, 1997. This increase was mainly due to
increases in non-related legal fees and other fees which were part of the
Company's new listing on NASDAQ. In addition, bad debt expense for the three
month period ended September 30, 1998 was $29,000, versus -0- for the similar
period ended September 30, 1997.
Balance Sheet and Reserves
Total assets increased $2,889,000 as of September 30, 1998 when compared
with the balance sheet as of June 30, 1998. This increase was due to
management's decision to expand its portfolio in the Chicago Medallion Market
plus increase its diversified loan portfolio. This expansion was financed by
additional bank debt, $2,810,000, during the three month period.
Year 2000 Compliance
The Company has been taking steps to address and prevent problems in
connection with the year 2000 ("Y2K"). Such problems are expected to occur due
to the inability of systems to properly recognize and process date-sensitive
information relating to the Y2K and beyond. Y2K issues may affect the Company's
information technology systems ("IT") and non-information technology systems
("Non-IT").
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<PAGE>
The Company is a Small Business Investment Company licensed by the Small
Business Administration and as such, most of its business is making loans and
investments to small business concerns. The following are the IT systems that
the Company utilizes:
The Company uses a computer program to track its receivable loans
("Loan Track"). To address Y2K, approximately one year ago, the Company
engaged the consultant who originally developed Loan Track for the Company,
to test, upgrade and certify Loan Track as Y2K- compliant. The consultant
completed all of such tasks and the Y2K-compliant Loan Track program is now
in use in the Company's regular operations. The Company also utilizes the
standard Peachtree accounting system for general in-house accounting
functions. The version of Peachtree, currently in use by the Company, has
been upgraded to be Y2K-compliant.
The Company also utilizes other industry-wide programs such as Windows
95 and Word Perfect. It is expected that either the current versions are
Y2K- compliant or that Y2K-compliant upgrade versions will be obtained in
the near future. In addition, during the past twelve months and at present,
the Company has been replacing or upgrading its computer hardware with
equipment that will be Y2K- compliant.
Non-IT systems have been defined as embedded technology such as
micro-controllers which may be included in elevators and other equipment and
machinery. Most of the Company's Non-IT systems consist of office equipment. The
Company has inventoried its Non-IT systems and is in the process of contacting
its office equipment and telecommunications suppliers and landlord to determine
the status of their Y2K readiness. The Company does not believe that it faces
material Y2K issues with respect to its Non-IT systems.
Costs in connection with Y2K compliance have been (i) to review and upgrade
existing IT systems; (ii) to analyze Y2K readiness of its banks and customers
and (iii) to analyze Non-IT Y2K compliance. To date such costs, have aggregated
approximately $10,000 and for the most part have been for IT review and
upgrades. Such costs are being treated as expenses. The Company expects to spend
approximately $25,000 to replace certain hardware during the fiscal year ending
June 30, 1999 and that the cost of such replacements will be capitalized and
depreciated over a five year period. The Company also expects to spend an
additional $5,000 - $10,000 on a survey of its remaining miscellaneous software
to determine its Y2K compliance and that this expenditure will be treated as an
expense. The Company does not believe that other costs associated with Y2K
compliance will be material or that they will have a material effect on the
Company's financial condition.
The Company is dependent on banks for financing and for normal banking
operations. In surveying Y2K readiness, the Company has received oral and is in
the process of obtaining written assurances from its banks that they are taking
the actions necessary to be Y2K-compliant so that neither the banks' nor their
customers' business will be interrupted due to Y2K difficulties.
The Company's portfolio companies are taxi-cab and taxi-medallion owners
and other small businesses, which, to the best of the Company's knowledge, use
computer equipment and software only to a limited extent in the operation of
their businesses. The Company is in the process of surveying its customers to
assess their potential Y2K exposure and to confirm that they are making
arrangements for their own Y2K compliance.
To date the Company has attempted to comply fully with Y2K compliance
requirements and is in the process of determining the compliance of its banks
and customers. Failure of third parties or the Company to adequately address
their respective Y2K issues could have a material adverse effect on the
Company's financial condition or results of operations. However, given the
nature of its portfolio companies and the industries in which they operate the
Company anticipates that few of its customers would actually suffer material
adverse effects from Y2K. The Company believes that its reasonably likely worst
case scenario is (i) a material increase in the Company's credit losses due to
Y2K problems affecting the Company's portfolio companies and its banks and (ii)
disruption in financial markets causing liquidity stress to the Company.
At this point the Company's management is unable to quantify the amount of
potential losses and disruptions due to Y2K issues, but is in the process of
developing a contingency plan.
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<PAGE>
ELK ASSOCIATES FUNDING 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.
ELK ASSOCIATES FUNDING CORPORATION
Date: February 16, 1999 By: /s/ Gary C. Granoff
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Gary C. Granoff
Chief Financial Officer
(Principal Financial Officer and Chief
Accounting Officer)
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