AMERITRANS CAPITAL CORP - FORM 10-Q

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EX-31.1 - AMERITRANS CAPITAL CORP	exh31_1.htm
EX-32.2 - AMERITRANS CAPITAL CORP	exh32_2.htm
EX-31.2 - AMERITRANS CAPITAL CORP	exh31_2.htm
EX-32.1 - AMERITRANS CAPITAL CORP	exh32_1.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934 for the Quarterly Period Ended
September 30, 2012

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period
from to

Commission File Number 0-22153

AMERITRANS CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		52-2102424
(State of incorporation)		(I.R.S. Employer Identification No.)

50 Jericho Quadrangle, Suite 109 Jericho, New York 11753
(Address of registrant’s principal executive office) (Zip Code)

(212) 355-2449
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

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 (the “ Act ” ) 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 þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Act).

Large accelerated filer

Accelerated filer

Non-accelerated filer

(Do not check if a small

reporting company.)

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

The number of shares of registrant’s common stock, par value $.0001 per share, outstanding as of November 9, 2012 was 3,395,583. The number of shares of Registrant’s 9 ? cumulative participating redeemable preferred stock outstanding as of November 9, 2012 was 300,000.

AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION			3

	ITEM 1.	FINANCIAL STATEMENTS	3

	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	26

	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	31

	ITEM 4.	CONTROLS AND PROCEDURES	31

PART II. OTHER INFORMATION			33

	Item 1.	Legal Proceedings	33
	Item 1A.	Risk Factors	35
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
	Item 3.	Default upon Senior Securities	35
	Item 4.	Mine Safety Disclosures	35
	Item 5.	Other Information	36
	Item 6.	Exhibits	36
	Exhibit Index		36
	(a)	Exhibits	36

	SIGNATURES		37

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES


	September 30, 2012			June 30, 2012
	(Unaudited)
Assets

Investments at fair value (cost of $21,687,875 and $22,401,381, respectively):
Non-controlled/non-affiliated investments	$	15,318,757		$	16,169,728
Controlled affiliated investments		331,685			332,878

Total investments at fair value		15,650,442			16,502,606

Cash		125,718			184,338
Accrued interest receivable		775,343			807,643
Assets acquired in satisfaction of loans		878,325			878,325
Furniture and equipment, net		42,045			44,359
Deferred loan costs, net		242,746			260,459
Prepaid expenses and other assets		245,522			263,641

Total assets	$	17,960,141		$	18,941,371

Liabilities and Net Liabilities
Liabilities:
Debentures payable to SBA	$	21,175,000		$	21,175,000
Accrued expenses and other liabilities		511,352			312,353
Accrued interest payable		601,593			342,506
Dividends payable		759,375			675,000

Total liabilities		23,047,320			22,504,859

Commitments and contingencies (Notes 2, 3, 4, 5 and 8)

Net Liabilities:
Preferred stock 9,500,000 shares authorized, none issued or outstanding		-			-
9-3/8% cumulative participating redeemable preferred stock; $.01 par value, $12.00 face value, 500,000 shares authorized; 300,000 shares issued and outstanding		3,600,000			3,600,000
Common stock, $.0001 par value; 45,000,000 shares authorized, 3,405,583 shares issued; 3,395,583 shares outstanding		341			341
Additional paid-in capital		21,330,544			21,330,544
Losses and distributions in excess of earnings		(23,910,631	)		(22,525,598	)
Net unrealized depreciation on investments		(6,037,433	)		(5,898,775	)
Total		(5,017,179	)		(3,493,488
Less: Treasury stock, at cost, 10,000 shares of common stock		(70,000	)		(70,000	)

Total net liabilities		(5,087,179	)		(3,563,488	)

Total liabilities and net liabilities	$	17,960,141		$	18,941,371

Net liability value per common share	$	(2.56	)	$	(2.11	)

The accompanying notes are an integral part of these consolidated financial statements.

AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


	For the three months ended September 30,
	2012			2011
Investment income:	(unaudited)			(unaudited)
Interest on loans receivable:
Non-controlled/non-affiliated investments	$	267,799		$	516,334
Controlled affiliated investments		6,614			7,053
		274,413			523,387
Fees and other income		-			8,243
Total investment income		274,413			531,630
Expenses:
Interest		259,087			400,803
Salaries and employee benefits		256,909			426,780
Occupancy costs		43,983			43,297
Legal fees		524,657			273,796
Accounting and compliance fees		137,836			228,940
Directors fees and expenses		84,500			37,531
Advisory Fee		-			46,084
Other administrative expenses		165,068			214,442
Total expenses		1,472,040			1,671,673
Net investment loss		(1,197,627	)		(1,140,043	)
Net realized gains (losses) on investments:
Non-controlled/non-affiliated investments		(103,031	)		263,489
		(103,031	)		263,489
Net unrealized depreciation on investments		(138,658	)		(558,976	)
Net realized/unrealized losses on investments		(241,689	)		(295,487	)
Net decrease in net assets from operations		(1,439,316	)		(1,435,530	)
Distributions to preferred shareholders		(84,375	)		(84,375	)
Net increase in net liabilities from operations available to common shareholders	$	(1,523,691	)	$	(1,519,905	)

Weighted Average Number of Common Shares Outstanding:
Basic and diluted		3,395,583			3,395,583
Net Decrease in Net Assets from Operations Per Common Share:
Basic and diluted	$	(0.45	)	$	(0.45	)

The accompanying notes are an integral part of these consolidated financial statements.

AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET LIABILITIES


	For the three months ended September 30,
	2012			2011
	(unaudited)			(unaudited)
Increase in net liabilities from operations:
Net investment loss	$	(1,197,627	)	$	(1,140,043	)
Net realized gain (loss) from investments		(103,031	)		263,489
Unrealized depreciation on investments		(138,658	)		(558,976	)

Net increase in net liabilities resulting from operations		(1,439,316	)		(1,435,530	)

Shareholder distributions:
Distributions to preferred shareholders		(84,375	)		(84,375	)

Net increase in net liabilities resulting from shareholder distributions		(84,375	)		(84,375	)

Total increase in net liabilities		(1,523,691	)		(1,519,905	)

Net assets (liabilities):
Beginning of period		(3,563,488	)		2,236,093

End of period	$	(5,087,179	)	$	716,188

Net assets per preferred	$	3,600,000		$	3,600,000
Net liabilities per common	$	(8,687,179	)	$	(2,883,812	)

The accompanying notes are an integral part of these consolidated financial statements.

AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the three months ended September 30,
	2012				2011
	(unaudited)				(unaudited)
Cash flows from operating activities:
Net decrease in net assets from operations	$	(1,439,316	)	$		(1,435,530	)
Adjustments to reconcile net increase in net liabilities from operations to net cash used in operating activities:
Depreciation and amortization		20,026				20,119
Net realized (gains) losses on investments		103,031				(263,489	)
Net unrealized depreciation on investments		138,658				558,976
Portfolio Investments		(425,246)				(300,205	)
Proceeds from principal receipts, sales, maturity of investments		1,035,721				2,268,009
Changes in operating assets and liabilities:
Accrued interest receivable		32,300				(30,732	)
Prepaid expenses and other assets		18,120				(189,900	)
Accrued expenses and other liabilities		198,999				(803,981	)
Accrued interest payable		259,087				(259,367	)
Total adjustments		1,380,696				999,430
Net cash used in operating activities		(58,620)				(436,100	)
Cash flows from investing activities:
Purchases of furniture and equipment		-				(1,890	)
Net cash used in investing activities		-				(1,890	)

Cash flows from financing activities:
Repayment of debt		-				(76,380	)
Net cash used in financing activities		-				(76,380	)
Net decrease in cash and cash equivalents		(58,620)				(514,370	)
Cash:
Beginning of period		184,338				4,151,616
End of period	$	125,718		$		3,637,246

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	-		$		660,170
Supplemental disclosure of non cash investing and financing activities:
Accrued dividend payable	$	84,375		$		84,375

The accompanying notes are an integral part of these consolidated financial statements.

AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INVESTMENTS


		Portfolio Valuation as of September 30, 2012
Portfolio Company (1)	Investment Investment Rate/Maturity	Principal		Net Cost		Value
Commercial Loans Receivable (102.11%) (4)
PPCP Inc. (6) Computer Software	Business Loan 8.00%, due 7/08 and 1/10	$	36,691	$	36,691	$	-
Geronimo ATM Fund LLC (6) ATM Operato	Collateralized Business Loan 12.0%, due 5/09		123,282		123,282		-
Vivas & Associates, Inc. (6) Nail Salon	Collateralized Business Loan 9.00%, due 1/10		11,985		11,985		-
E&Y General Construction Co. (6) Construction Services	Senior Real Estate Mortgage 10.50%, due 10/10		870,791		870,791		870,791
Soundview Broadcasting LLC Television and Broadcasting	Senior Real Estate Mortgage 6.00%, due 9/16		1,738,872		1,738,872		1,738,872
Golden Triangle Enterprises LLC Retail Food Service	Senior Real Estate Mortgage 4.74%, due 12/13		165,104		165,104		165,104
Conklin Services & Construction Inc. (6) Specialty Construction and Maintenance	Collateralized Business Loan 11.00%, due 10/08		1,648,181		1,648,181		1,450,000
Mountain View Bar & Grill Inc. (6) Retail Food Service	Collateralized Business Loan 12.00%, due 5/09		406,067		406,067		406,067
J. JG. Associates, Inc. (6) Consumer Receivable Collections	Senior Loan no stated rate, no maturity		182,936		182,936		85,250
J. JG. Associates, Inc. (6) Consumer Receivable Collections	Senior Loan no stated rate, no maturity		35,781		35,781		35,781
Car-Matt Real Estate LLC (6) Real Estate Mortgage	Senior Real Estate Mortgage 12.00%, due 11/08		135,577		135,577		18,933
CMCA, LLC (3) Consumer Receivable Collections	Collateralized Business Loan 12,00% no stated maturity		215,424		215,424		215,424
CMCA, LLC #2 (2) (3) (6) Consumer Receivable Collections	Collateralized Business Loan 12.00%, no stated maturity		106,261		106,261		106,261
Andy Fur (6) Dry Cleaners	Collateralized Business Loan 11.5%, due 1/10		12,103		12,103		-
Greaves-Peters Laundry Systems Inc. (6) Laundromat	Collateralized Business Loan 10.90%, due 9/13		20,471		20,471		20,471
Other Miscellaneous Loans (5) (6)			114,714		114,714		81,660
	Total Commercial Loans				5,824,240		5,194,614
Corporate Loans Receivable (115.65%) (4)
Charlie Brown’s Acquisition Co. (6) Retail Food Service	Term Loan B 10.25%, all PIK, due 10/13		2,356,682		2,356,682		471,336
Alpha Media Group Inc. Publishing	Term Loan, First Lien 12.00%, all PIK , due 7/13		2,769,045		2,735,378		830,713
Hudson Products Holdings Inc. Diversified Manufacturing	Term Loan, First Lien 9.00%, due 8/15		1,256,635		1,237,490		1,235,898
Education Affiliates Inc. Private Education	Term Loan, First Lien 8.00%, due 1/15		759,800		750,863		706,614
Impact Confections Inc. Candy Manufacturer	Term Loan, First Lien 17.00%, of which 5% is PIK, due 7/15		1,638,522		1,638,522		1,638,522
Sterling Infosystems, Inc. Information Data Systems	Term Loan, First Lien 7.25%, due 02/18		997,500		979,528		999,993
	Total Corporate Loans				9,698,463		5,883,076
	Total loans receivable				15,522,703		11,077,690

The accompanying notes are an integral part of these consolidated financial statements.

AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INVESTMENTS (continued)


		Portfolio Valuation as of September 30, 2012
Portfolio Company (1)	Investment Investment Rate/Maturity	Principal	Net Cost		Value
Life Insurance Settlement Contracts (68.61%) (4)
Life Settlement Contracts	4 life insurance policies, aggregate face value of $17,250,000		$	4,863,145	$	3,490,401
Equity Investments (21.28%) (4)
MBS Colonnade, Ltd. Rental Real Estate Limited Partnership	Limited Partnership Interest			50,000		10,211
MBS Sage Creek, Ltd. Rental Real Estate Limited Partnership	Limited Partnership Interest			50,000		2,377
MBS Walnut Creek, Ltd. Rental Real Estate Limited Partnership	Limited Partnership Interest			25,000		-
238 W. 108 Realty LLC (2) Residential Real Estate Development	5.00% LLC Interest			100,000		-
Asset Recovery & Management, LLC(2) (3) Consumer Receivable Collections	30.00% LLC Interest			6,000		6,000
CMCA, LLC (2) (3) Consumer Receivable Collections	30.00% LLC Interest			4,000		4,000
Soha Terrace II LLC Real Estate Development	4.20% LLC Interest			700,000		1,050,000
Fusion Telecommunications Internet Telephony	69,736 Shares of Common Stock			367,027		9,763
	Total equity investments			1,302,027		1,082,351
	Total investments		$	21,687,875	$	15,650,442

(1) As of July 5, 2011, all investments previously pledged as collateral for a note payable to a bank were released in connection with the expiration of the credit line. All investments, other than investments held through Elk Associates Funding Corporation, were pledged as collateral for a Senior Secured Note, but were released as such notes were paid off in March 2012 (see Note 4 to the consolidated financial statements).

(2) As defined in the Investment Company Act of 1940, we are an affiliate of this portfolio company because, as of September 30, 2012, we own 5% or more of the portfolio company’s outstanding voting securities.

(3) As defined in the Investment Company Act of 1940, we maintain “control” of this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities.

(4) Percentage of net assets.

(5) Other small balance loans.

(6) Loan receivable is on non-accrual status and therefore is considered non-income producing. Included in Other Miscellaneous Loans is a loan at no value that is on non-accrual status.

The accompanying notes are an integral part of these consolidated financial statements.

AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INVESTMENTS


		Portfolio Valuation as of June 30, 2012
Portfolio Company (1)	Investment Investment Rate/Maturity	Principal		Net Cost		Value
Commercial Loans Receivable (146.72%) (4)
PPCP Inc. (6) Computer Software	Business Loan 8.00%, due 7/08 and 1/10	$	36,691	$	36,691	$	-
Geronimo ATM Fund LLC (6) ATM Operato	Collateralized Business Loan 12.0%, due 5/09		123,282		123,282		-
Vivas & Associates, Inc. (6) Nail Salon	Collateralized Business Loan 9.00%, due 1/10		11,985		11,985		-
E&Y General Construction Co. (6) Construction Services	Senior Real Estate Mortgage 10.50%, due 10/10		870,791		870,791		870,791
Soundview Broadcasting LLC Television and Broadcasting	Senior Real Estate Mortgage 6.00%, due 9/16		1,761,340		1,761,340		1,761,340
Golden Triangle Enterprises LLC Retail Food Service	Senior Real Estate Mortgage 4.74%, due 12/13		174,759		174,759		174,759
Conklin Services & Construction Inc. (6) Specialty Construction and Maintenance	Collateralized Business Loan 11.00%, due 10/08		1,648,181		1,648,181		1,450,000
Mountain View Bar & Grill Inc. (6) Retail Food Service	Collateralized Business Loan 12.00%, due 5/09		406,067		406,067		406,067
J. JG. Associates, Inc. (6) Consumer Receivable Collections	Senior Loan no stated rate, no maturity		182,936		182,936		85,250
J. JG. Associates, Inc. (6) Consumer Receivable Collections	Senior Loan no stated rate, no maturity		35,781		35,781		35,781
Car-Matt Real Estate LLC (6) Real Estate Mortgage	Senior Real Estate Mortgage 12.00%, due 11/08		135,577		135,577		18,933
CMCA, LLC(2) (3) Consumer Receivable Collections	Collateralized Business Loan 12,00% no stated maturity		216,617		216,617		216,617
CMCA, LLC #2(2) (3) (6) Consumer Receivable Collections	Collateralized Business Loan 12.00%, no stated maturity		106,261		106,261		106,261
Andy Fur (6) Dry Cleaners	Collateralized Business Loan 11.5%, due 1/10		12,103		12,103		-
Greaves-Peters Laundry Systems Inc. (6) Laundromat	Collateralized Business Loan 10.90%, due 9/13		20,471		20,471		20,471
Other Miscellaneous Loans (5) (6)			115,031		115,031		81,977
	Total Commercial Loans				5,857,873		5,228,247
Corporate Loans Receivable (196.20%) (4)
Charlie Brown’s Acquisition Co. (6) Retail Food Service	Term Loan B 10.25%, all PIK, due 10/13		2,356,682		2,356,682		471,336
Alpha Media Group Inc. Publishing	Term Loan, First Lien 12.00%, all PIK , due 7/13		2,687,778		2,649,826		940,722
Hudson Products Holdings Inc. Diversified Manufacturing	Term Loan, First Lien 8.5%, due 8/15		1,259,899		1,239,147		1,165,407
Education Affiliates Inc. Private Education	Term Loan, First Lien 8.0%, due 1/15		773,449		763,519		719,308
Shearer’s Foods Inc. Wholesale Food Supplier	Term Loan, First Lien 15.75%, of which 3.75% is PIK, due 6/15		1,075,400		1,059,775		1,075,400
Impact Confections Inc. Candy Manufacturer	Term Loan, First Lien 17.00%, of which 5% is PIK, due 07/15		1,618,071		1,618,071		1,618,071
Sterling Infosystems, Inc. Information Data Systems	Term Loan, First Lien 7.25%, due 02/18		1,000,000		981,171		1,001,250
	Total Corporate Loans				10,668,191		6,991,494
	Total loans receivable				16,526,064		12,219,741

The accompanying notes are an integral part of these consolidated financial statements.

AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INVESTMENTS (continued)


		Portfolio Valuation as of June 30, 2012
Portfolio Company (1)	Investment Investment Rate/Maturity	Principal	Net Cost		Value
Life Insurance Settlement Contracts (89.91%) (4)
Life Settlement Contracts	4 life insurance policies, aggregate face value of $17,250,000		$	4,573,290	$	3,204,001
Equity Investments (30.28%) (4)
MBS Colonnade, Ltd. Rental Real Estate Limited Partnership	Limited Partnership Interest			50,000		10,211
MBS Sage Creek, Ltd. Rental Real Estate Limited Partnership	Limited Partnership Interest			50,000		2,377
MBS Walnut Creek, Ltd. Rental Real Estate Limited Partnership	Limited Partnership Interest			25,000		-
238 W. 108 Realty LLC (2) Residential Real Estate Development	5.00% LLC Interest			100,000		-
Asset Recovery & Management, LLC (2)(3) Consumer Receivable Collections	30.00% LLC Interest			6,000		6,000
CMCA, LLC (2)(3) Consumer Receivable Collections	30.00% LLC Interest			4,000		4,000
Soha Terrace II LLC Real Estate Development	4.20% LLC Interest			700,000		1,050,000
Fusion Telecommunications Internet Telephony	69,736 Shares of Common Stock			367,027		6,276
	Total equity investments			1,302,027		1,078,864
	Total investments		$	22,401,381	$	16,502,606

(2) As defined in the Investment Company Act of 1940, we are an affiliate of this portfolio company because, as of June 30, 2012, we own 5% or more of the portfolio company’s outstanding voting securities.

(3) As defined in the Investment Company Act of 1940, we maintain “control” of this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities.

(4) Percentage of net assets.

(5) Other small balance loans.

(6) Loan receivable is on non-accrual status and therefore is considered non-income producing. Included in Other Miscellaneous Loans is a loan at no value that is on non-accrual status.

The accompanying notes are an integral part of these consolidated financial statements.

AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information at and for the three months ended September 30, 2012 and 2011 is unaudited

1. Organization and Summary of Significant Accounting Policies

Financial Statements

The consolidated statement of assets and liabilities of Ameritrans Capital Corporation (“Ameritrans”, the “Company”, “our”, “us”, or “we”) as of September 30, 2012, and the related consolidated statements of operations, statement of changes in net assets, and cash flows for the three months ended September 30, 2012 and 2011, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC” or “the Commission”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of management and the board of directors of the Company (“Management” and “Board of Directors”), 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 three months ended September 30, 2012, are not necessarily indicative of the results of operations for the full year or any other interim period. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012, as filed with the Commission by the Company on September 28, 2012.

Organization and Principal Business Activity

Ameritrans is a Delaware closed-end investment company formed in 1998, which, among other activities, makes loans and investments with the goal of generating both current income and capital appreciation. Through our subsidiary, Elk Associates Funding Corporation (“Elk”), we make loans to finance the acquisition and operation of small businesses as permitted by the U.S. Small Business Administration (the “SBA”). Ameritrans also makes direct loans to and directly invests in opportunities that Elk has historically been unable to make due to SBA restrictions. Ameritrans makes loans which have primarily been secured by real estate mortgages or, in the case of corporate loans, generally are senior within the capital structure. Elk was organized primarily to provide long-term loans to businesses eligible for investments by small business investment companies (each an “SBIC”) under the Small Business Investment Act of 1958, as amended (the “1958 Act”). Elk makes loans for financing the purchase or continued ownership of businesses that qualify for funding as small concerns under SBA Regulations. However, as described in Notes 3 and 8 below, on October 31, 2012 Elk entered into a settlement agreement with the SBA pursuant to which Elk agreed to surrender its SBIC license by December 15, 2012. The Company categorizes its investments into four types of securities: 1) Corporate Loans Receivable; 2) Commercial Loans Receivable; 3) Life Insurance Settlements and 4) Equity Investments.

Both Ameritrans and Elk are registered as business development companies, or “BDCs,” under the Investment Company Act of 1940, as amended (the “1940 Act”). Accordingly, Ameritrans and Elk are subject to the provisions of the 1940 Act governing the operation of BDCs. Both companies are managed by their executive officers under the supervision of their Boards of Directors.

Basis of Presentation and Consolidation

The consolidated financial statements are presented based on accounting principles generally accepted in the United States of America (“GAAP”). These consolidated financial statements include the accounts of Ameritrans, Elk Capital Corporation (“Elk Capital”), Elk and Elk’s wholly owned subsidiary, EAF Holding Corporation (“EAF”) and five single-member, limited liability companies, each wholly-owned by Ameritrans and each holding one insurance policy in connection with our life settlement investments portfolio. All significant inter-company transactions have been eliminated in consolidation.

Elk Capital is a wholly owned subsidiary of Ameritrans, which may engage in lending and investment activities similar to its parent.

EAF began operations in December 1993 and owns and operates certain real estate assets acquired in satisfaction of defaulted loans by Elk debtors. At September 30, 2012, EAF was operating the real estate of Sealmax, Inc. and 633 Meade Street, LLC, acquired in satisfaction of loans.

Investment Valuations

The Company’s loans receivable, net of participations and any unearned discount are considered investment securities under the 1940 Act and are recorded at fair value. As part of fair value methodology, loans are valued at cost adjusted for any unrealized appreciation (depreciation). Since no ready market exists for these loans, the fair value is determined in good faith by management and approved by the Board of Directors. In determining the fair value, management and the Board of Directors consider factors such as the financial condition of the borrower, the adequacy of the collateral, individual credit risks, historical loss experience and the relationships between current and projected market rates and portfolio rates of interest and maturities. Foreclosed properties, which represent collateral received from defaulted borrowers, are valued similarly.

Loans are, generally, considered “non–performing” once they become 90 days past due as to principal or interest. The values of past due loans are periodically determined in good faith by management, and if, in the judgment of management, the amount is not collectible and the fair value of the collateral is less than the amount due, the value of the loan will be reduced to fair value.

Equity investments (preferred stock, common stock, stock warrants, LLC interests, and LP interests, including certain controlled subsidiary portfolio investments) and investment securities are recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation. Investments for which market quotations are readily available are valued at such quoted amounts. If no public market exists the fair value of investments that have no ready market are determined in good faith by management and approved by the Board of Directors, based upon assets and revenues of the underlying investee companies, as well as general market trends for businesses in the same industry.

The Company records the investment in life insurance settlement contracts at the Company’s estimate of their fair value based upon various factors including a discounted cash flow analysis of anticipated life expectancies, future premium payments and anticipated death benefits. The Company also considers the market for similar policies. The fair value of the investment in life settlement contracts have no ready market and are determined in good faith by management and approved by the Board of Directors (see Note 2).

Because of the inherent uncertainty of valuations, the Company’s estimates of the values of the investments may differ significantly from the values that would have been used had a ready market for the investments existed and the differences could be material.

Income Taxes

The Company has elected to be taxed as a Regulated Investment Company (“RIC”) under the Internal Revenue Code (the “Code”). A RIC, generally, is not taxed at the corporate level to the extent its income is distributed to its stockholders. In order to qualify as a RIC, a company must pay out at least 90 percent of its net taxable investment income to its stockholders as well as meet other requirements under the Code. In order to preserve this election for fiscal year 2012/2013, the Company intends to make the required distributions to its stockholders to the extent the Company has net taxable investment income. No dividends on the Company’s common stock have been paid in each of the fiscal years ended June 30, 2012, 2011 and 2010 or during the three months ended September 30, 2012, inasmuch as the Company had no taxable investment income during such periods. Accordingly, the Company has maintained its status as a RIC.

The Company is subject to certain state and local franchise taxes, as well as related minimum filing fees assessed by state taxing authorities. Such taxes and fees are included in “Other administrative expenses” in the consolidated statements of operations in each of the fiscal periods presented. The Company’s tax returns for fiscal years ended 2009 through 2012 are subject to examination by federal, state and local income tax authorities.

Depreciation and Amortization

Depreciation and amortization are computed using the straight-line method over the useful lives of the respective assets. Leasehold improvements are amortized over the life of the respective leases.

Assets Acquired in Satisfaction of Loans

Assets acquired in satisfaction of loans are carried at the lower of the net value of the related foreclosed loan or the estimated fair value. Losses incurred at the time of foreclosure are charged to the realized losses on loans receivable. Subsequent reductions in estimated net realizable value are charged to operations as losses on assets acquired in satisfaction of loans.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The fair value of the Company’s investments is particularly susceptible to significant changes.

Increase (Decrease) in Net Liabilities Per Share

Increase (decrease) in net liabilities per share includes no dilution and is computed by dividing current net increase (decrease) in net liabilities from operations available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted increase (decrease) in net liabilities per share reflects, in periods in which they have a dilutive effect, the effect of common shares issuable upon the exercise of stock options and warrants. The difference between reported basic and diluted weighted average common shares results from the assumption that all dilutive stock options outstanding were exercised. For the periods presented, the effect of common stock equivalents has been excluded from the diluted calculation since the effect would be antidilutive.

Dividends

Dividends and distributions, if any, declared and paid (or payable) to our common and preferred stockholders are recorded on the applicable record date. The amount to be paid out as a dividend is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment.

On June 30, 2008, the Board approved and adopted a dividend reinvestment plan that provides for reinvestment of distributions in the Company’s Common Stock on behalf of common stockholders, unless a stockholder elects to receive cash. As a result, if the Board authorizes, and the Company declares, a cash dividend, then those stockholders who have not “opted out” of the dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of Common Stock, rather than receiving the cash dividends. As of September 30, 2012, no shares have been purchased under the plan.

Income Recognition

Interest income, including interest on loans in default, is recorded on an accrual basis and in accordance with loan terms to the extent such amounts are expected to be collected. The Company recognizes interest income on loans classified as non-performing only to the extent that the fair market value of the related collateral exceeds the specific loan balance. Loans that are not fully collateralized and in the process of collection are placed on nonaccrual status when, in the judgment of management, the collectability of interest and principal is doubtful.

Stock Options

Stock-based employee compensation costs in the form of stock options is recognized as an expense over the vesting period of the underlying option using the fair values established by usage of the Black-Scholes option pricing model. The 1940 Act restricts BDCs’ ability to grant equity-based incentive compensation at a time when it has engaged an investment adviser.

The Company’s stock option plans expired on May 21, 2009 and during the two year period ended December 10, 2011 for which the Company engaged Velocity Capital Advisors LLC as the Company’s investment adviser, the Company’s ability to grant equity-based incentive compensation was severely limited by the 1940 Act.

Financial Instruments

The carrying value of cash and cash equivalents, accrued interest receivable and payable and other receivables and payables, approximates fair value due to the relative short maturities of these financial instruments. The Company’s investments, including loans receivable, life settlement contracts and equity securities, are carried at their estimated fair value. The fair value of the SBA debentures was computed using the discounted amount of future cash flows using the Company’s current incremental borrowing rate for similar types of borrowings (see Note 6).

Going Concern and Management’s Plans

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred operating losses and negative operating cash flow and losses are expected to continue. The Company’s plan of obtaining equity financing, even if successful, may not result in funds sufficient to maintain and expand its business and/or satisfy its Settlement Agreement and Mutual Release with the SBA. These factors raise doubt about the Company’s ability to continue as a going concern. Realization of assets is dependent upon continued operations of the Company, which in turn is dependent upon Management’s plans to meet its financing requirements and the success of its future operations. The ability of the Company to continue as a going concern is dependent on securing additional financing and on improving the Company’s profitability and cash flow. In addition, on February 22, 2012, the SBA referred Elk to the SBA’s Office of Liquidation, based on Elk’s violation of capital impairment percentage requirements in prior periods, which is continuing. Although the Company attempted to obtain equity financing on multiple occasions with a view towards, among other things, curing Elk’s capital impairment and executing its growth strategy, the SBA rejected all financing transactions that the Company had submitted to it for approval (see Note 3 to the consolidated financial statements). As also discussed in Note 3, on October 31, 2012, Elk and the SBA entered into a Settlement Agreement and Mutual Release with respect to Elk’s pending lawsuit against the SBA, pursuant to which Elk agreed to pay the SBA $7,900,000 by December 15, 2012 (the “Settlement Effective Date”) and surrender its SBIC license, in full and final satisfaction of all outstanding SBA leverage owed to the SBA through the Settlement Effective Date plus all additional interest which may accrue through the date the settlement payment is made. While the Company believes that its business strategy, including its plans to obtain financing to make the Settlement Payment and surrender Elk’s SBIC license in satisfaction of Elk’s obligations to the SBA and to otherwise seek additional financing transactions, is viable and provides the Company the opportunity to continue as a going concern, there can be no assurances to that effect. These financial statements do not include any adjustments related to the recoverability and classification of asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

2. Investments

The following table shows the Company’s portfolio by security type at September 30, 2012 and June 30, 2012:


	September 30, 2012						June 30, 2012
	(Unaudited)
Security Type	Cost		Fair Value		% (1)		Cost		Fair Value		% (1)
Commercial Loans	$	5,824,240	$	5,194,614	33.2	%	$	5,857,873	$	5,228,247	31.7	%
Corporate Loans		9,698,463		5,883,076	37.6	%		10,668,191		6,991,494	42.4	%
Life Settlement Contracts		4,863,145		3,490,401	22.3	%		4,573,290		3,204,001	19.4	%
Equity Securities		1,302,027		1,082,351	6.9	%		1,302,627		1,078,864	6.5	%
Total	$	21,687,875	$	15,650,442	100.0	%	$	22,401,981	$	16,502,606	100.0	%

(1) Represents percentage of total portfolio at fair value

Investments by Industry

Investments by industry consist of the following as of September 30, 2012 and June 30, 2012:


	September 30, 2012					June 30, 2012
	Value		Percentage of Portfolio			Value		Percentage of Portfolio
Broadcasting/Telecommunications	$	1,738,872		11.1	%	$	1,761,340		10.7	%
Commercial Construction		2,339,724		14.9	%		2,339,724		14.2	%
Construction and Predevelopment		1,050,000		6.7	%		1,050,000		6.4	%
Debt Collection		452,716		2.9	%		453,909		2.7	%
Education		706,614		4.5	%		719,308		4.3	%
Food and Candy Manufacturing		1,638,522		10.5	%		2,693,471		16.3	%
Info Data Systems		999,993		6.4	%		1,001,250		6.1	%
Life Insurance Settlement Contracts		3,490,401		22.3	%		3,204,001		19.4	%
Manufacturing		1,235,898		7.9	%		1,165,407		7.1	%
Printing/Publishing		830,713		5.3	%		940,722		5.7	%
Restaurant/Food Service		1,042,507		6.7	%		1,052,162		6.4	%
Other industries less than 1%		124,482		0.8	%		121,312		0.7	%
TOTAL	$	15,650,442		100.00	%	$	16,502,606		100.00	%

Loans Receivable

Loans are considered non-performing once they become ninety (90) days past due as to principal or interest. The Company had sixteen and fifteen loans which are considered non-performing aggregating $3,629,994 and $3,464,890, respectively, as of September 30, 2012 and June 30, 2012, respectively. These loans are either fully or substantially collateralized and are in some instances personally guaranteed by a principal of the debtor or third party. The Company’s non-performing loans are no longer accruing interest since the loan principal and accrued interest exceed the estimated fair value of the underlying collateral. The following table sets forth certain information regarding performing and non-performing loans as of September 30, 2012 and June 30, 2012:


	September 30, 2012		June 30, 2012
Loans receivable	$	11,077,690	$	12,219,741
Performing loans		7,447,696		8,754,851
Nonperforming loans	$	3,629,994	$	3,464,890
Nonperforming loans:
Accrual	$	165,104	$	-
Nonaccrual		3,464,890		3,464,890
	$	3,629,994	$	3,464,890

As of June 30, 2012 the Company had paid all fees in connection with the Company’s Investment Advisory and Management Agreement, as amended, (the “Advisory Agreement”) with Velocity Capital Advisors LLC (the “Adviser”) related to its Corporate Loans business. Pursuant to the Advisory Agreement, the Company incurred fees payable to the Adviser that were comprised of the following: (a) an annual base fee of 1.50% per annum of the aggregate fair value of Corporate Loans outstanding at the end of each quarter; (b) an income-based fee of 5% per annum, calculated quarterly, computed on interest and dividends earned from the Corporate Loan portfolio and (c) a capital gains fee of 17.5%, based on capital gains from the Corporate Loan portfolio. However, because minimum thresholds were not met during the term of the Advisory Agreement, the fees paid or accrued pursuant to the Advisory Agreement were based solely on each quarterly portion of the annual fee. Effective December 10, 2011, the Advisory Agreement expired and has not been renewed. On May 14, 2012, all amounts due to the Advisor were paid.

Life Settlement Contracts

In September, 2006, the Company entered into a joint venture agreement with an unaffiliated entity (the “Joint Venture”) to purchase previously issued life insurance policies owned by unrelated individuals. Subsequently, after a series of events involving charges against the manager of the Joint Venture for securities law violations and a court order freezing the assets of the manager, including the Joint Venture, on April 14, 2009, a receiver was appointed (the “Receiver”) to operate the Joint Venture and to administer the assets of the Joint Venture and other entities with which the manager of the Joint Venture was involved (the “Receivership Estate”). Following discussions with the Receiver, in December 2009, the Company negotiated an agreement, which, among other items, granted the Company the right to purchase the policies, subject to certain terms and conditions, including, but not limited to the Company’s agreement to pay the Receivership Estate 20% of all recoveries until the Company has recouped $2.1 million, plus the amount of any premiums paid following the date of the Purchase Agreement and 50% of all recoveries above such amount.

After a review of the current financing and regulatory environment, and other opportunities to make loans and investments, the Company decided to exit this line of business and plans to make no new investments in life insurance settlement policies other than the continued payment of premiums on existing investments.

As of September 30, 2012 and June 30, 2012, the fair value of the policies owned by the Company was $3,490,401 and $3,204,001, respectively, which represents the estimated fair value for the four life insurance policies with an aggregate face value of $17,250,000. The Company’s cost on these policies to date is $4,863,145, including insurance premiums of $289,855, which were paid during the three month period ended September 30, 2012. Premiums on the policies must be paid until the policies are sold in order to keep the policies in full force. One of the insureds who was covered by one of the policies in the Company’s life insurance settlement portfolio, passed away in August, 2011. The Company received approximately $320,000 from the proceeds of such policy after payment to the Receiver. At June 30, 2011, the fair value of such policy was $58,400, with a cost of $39,708.

The Company is entitled to sell the policies at any time, in its sole discretion and has no obligation to pay future premiums on the various policies. The approximate future minimum premiums due for each of the next five (5) years and in the aggregate, thereafter, based on current life expectancy of the insureds, are as follows:


Year Ending June 30	Policy Premiums

2013 (nine months)	$	655,551
2014		874,068
2015		874,068
2016		874,068
2017		823,092
Thereafter		683,355
	$	4,784,202

Based upon the current uncertain state of the life settlement market, the lack of liquidity at this time in this market due to the difficult credit conditions and the overall economy, the fact that these policies may have diminished value due to having been associated with the former manager of the Joint Venture, and the Company’s previously stated decision to exit the life settlement area, the Company has adjusted the fair value of these policies to reflect the current anticipated recovery based on estimated actuarial values that take into account the various factors discussed above. This is an estimate based upon the information currently available. The Company intends to pay future premiums and continues to pursue alternatives that could allow for a higher recovery.

Fair Value of Investments

GAAP has established a framework for measuring fair value and has expanded the disclosure requirements related to fair value measurements. Fair value is the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. GAAP requires the Company to assume that the portfolio investment is sold in a principal market to market participants, or in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with GAAP, the Company has considered its principal market as the market in which the Company exits its portfolio investments with the greatest volume and level of activity. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with GAAP, these inputs are summarized in the three broad levels listed below:

Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

In addition to using the above inputs in investment valuations, the Company continues to employ the valuation policy approved by the Board of Directors that is consistent with GAAP. Consistent with its valuation policy, the Company evaluates the source of inputs, including any markets in which its investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. The Company’s valuation policy considers the fact that because there may not be a readily available market value for most of the investments in its portfolio, the fair value of the investments must typically be determined using unobservable inputs. The Company's Level 3 investments require significant judgments by its investment committee, its investment advisor (if any) and its management and include market price quotations from market makers, original transaction price, recent transactions in the same or similar investments, financial analysis, economic analysis and related changes in financial ratios or cash flows to determine fair value. Such investments may also be discounted to reflect observed or reported illiquidity and/or restrictions on transferability. See Note 1 for additional information on the Company’s valuation policy.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of the Company’s investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company may realize significantly less than the value at which the Company recorded it.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned.

Assets measured at fair value on a recurring basis:


			Fair Value at Reporting Date Using
	September 30, 2012 (Unaudited)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Commercial Loans	$	5,194,614	$	-	$	-	$	5,194,614
Corporate Loans		5,883,076		.		-		5,883,076
Life Settlement Contracts		3,490,401		-		-		3,490,401
Equity Securities		1,082,351		9,763		-		1,072,588
Total Investments	$	15,650,442	$	9,763	$	-	$	15,640,679


			Fair Value at Reporting Date Using
	June 30, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Commercial Loans	$	5,228,247	$	-	$	-	$	5,228,247
Corporate Loans		6,991,494		-		-		6,991,494
Life Settlement Contracts		3,204,001		-		-		3,204,001
Equity Securities		1,078,864		6,276		-		1,072,588
Total Investments	$	16,502,606	$	6,276	$	-	$	16,496,330

Assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):


	Commercial Loans			Corporate Loans			Life Settlement Contracts		Equity Securities		Total
Beginning balance as of June 30, 2012	$	5,228,247		$	6,991,494		$	3,204,001	$	1,072,588	$	16,496,330
Net realized losses on investments		-			(103,031	)				.		(103,031	)
Net unrealized losses on investments		-			(138,690	)		(3,455)		.		(142,145	)
Purchases of investments					135,391			289,855		.		425,246
Repayments, sales or redemptions of investments		(33,633	)		(1,002,088	)		.		-		(1,035,721	)
Transfers in and/or out of Level 3		-			-			-		-		-
Ending balance as of September 30, 2012	$	5,194,614		$	5,883,076		$	3,490,401	$	1,072,588	$	15,640,679


The amount of total gains or (losses) for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to assets still held at the reporting date.	$	(142,145)
Gains and losses (realized and unrealized) included in net decrease in net assets from operations for the period above are reported as follows:
Net realized gain on sales and dispositions		15,625
Change in unrealized gains or losses relating to assets still held at reporting date	$	(126,520)


	Commercial Loans			Corporate Loans			Life Settlement Contracts			Equity Securities			Total
Beginning balance as of June 30, 2011	$	6,244,815		$	12,968,785		$	2,408,000		$	980,661		$	22,602,261
Net realized gains (losses) on investments		-			(28,011	)		288,139			(75,250	)		184,878
Net unrealized gains (losses) on investments		(128,644	)		(1,848,874	)		(95,657	)		168,027			(1,905,148)
Purchases of investments		2,463			1,517,902			931,366			-			2,451,731
Repayments, sales or redemptions of investments		(890,387	)		(5,618,308	)		(327,847	)		(850	)		(6,837,392)
Transfers in and/or out of Level 3		-			-			-			-			-
Ending balance as of June 30, 2012	$	5,228,247		$	6,991,494		$	3,204,001		$	1,072,588		$	16,496,330



Amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to assets still held at the reporting date	$	(1,905,148)
Gains and losses (realized and unrealized) included in net decrease in net assets from operations for the period above are reported as follows:
Gain (loss) on sales and dispositions		54,055
Change in unrealized losses relating to assets still held at reporting date	$	(1,851,093)

As of June 30, 2012, the aggregate net unrealized loss on the investments that use Level 3 inputs was $5,538,024. As of June 30, 2012, the aggregate net unrealized loss on Level 1 investments was $360,751. For the year ended June 30, 2012, the net unrealized loss on Level 1 investments aggregated $86,742. At June 30, 2012, only the investment in Fusion Communications was included in Level 1.

As of September 30, 2012, the aggregate net unrealized loss on the investments that use Level 3 inputs was $5,680,169. As of September 30, 2012, the aggregate net unrealized loss on Level 1 investments was $357,264. For the three months ended September 30, 2012, the net unrealized gain on Level 1 investments aggregated $3,487. At September 30, 2012, only the investment in Fusion Communications was included in Level 1.

3. Debentures Payable to SBA

At September 30, 2012, and June 30, 2012, debentures payable to the SBA consisted of subordinated debentures with interest payable semiannually, as follows:


Issue Date	Due Date	% Interest Rate		September 30, 2012		June 30, 2012		Annual Amount of Interest and User Fees
July 2002	September 2012		4.67 (1)	$	2,050,000	$	2,050,000	$	113,488
December 2002	March 2013		4.63 (1)		3,000,000		3,000,000		164,880
September 2003	March 2014		4.12 (1)		5,000,000		5,000,000		249,300
February 2004	March 2014		4.12 (1)		1,950,000		1,950,000		97,227
December 2009	March 2020		4.11 (2)		9,175,000		9,175,000		402,782
				$	21,175,000	$	21,175,000	$	1,027,677

(1) Elk is also required to pay an additional user fee of 0.866% on these debentures.

(2) Elk is also required to pay an additional user fee of 0.28% on these debentures.

(3) See SBA Litigation, discussed below and in Note 8.

Under the terms of the subordinated debentures, Elk may not repurchase or retire any of its capital stock or make any distributions to its stockholders other than dividends out of retained earnings (as computed in accordance with SBA regulations) without the prior written approval of the SBA.

Elk is required to calculate the amount of capital impairment each reporting period based on SBA regulations. The purpose of the calculation is to determine if the Undistributed Net Realized Earnings (Deficit) after adjustment for net unrealized gain or loss on securities exceeds the SBA regulatory limits. If so, Elk is considered to have impaired capital. Since June 30, 2010, Elk’s capital has been impaired. As of September 30, 2012, Elk’s maximum permitted calculated impairment percentage (regulatory limit) was 40%, with an actual capital impairment percentage, before allocation of expenses, of approximately 80%. Accordingly, Elk had a condition of capital impairment as of September 30, 2012, which would require additional capital of approximately $5.6 million to cure.

On March 6, 2012 (the “Notice Date”), Sean J. Greene (“Greene”), Associate Administrator Office of Investment and Innovation of SBA delivered written notice (the “Notice”) to Elk of SBA’s determination that Elk has a condition of capital impairment, based on Elk’s financial condition as of September 30, 2011. As stated in the Notice, Elk’s capital impairment percentage as of September 30, 2011 was 59%. Pursuant to the Notice, Greene directed Elk to cure the capital impairment within fifteen days from the Notice Date (the “Cure Period”). The Notice indicated the SBA may declare Elk’s total indebtedness to the SBA to be immediately due and payable and/or institute legal proceedings seeking the appointment of the SBA as Elk’s receiver if Elk failed to cure the capital impairment within the Cure Period. As of September 30, 2012, Elk had not cured its capital impairment.

The Notice also indicated that, on February 22, 2012, the SBA referred Elk to the SBA’s Office of Liquidation, based on Elk’s violation of capital impairment percentage requirements in prior periods, which are continuing. The Company believes that this referral was in error as it was enacted prior to Elk’s receiving the applicable fifteen day notice and opportunity to cure required under SBA regulations. Prior to receiving the Notice, Elk had notified the SBA of Elk’s belief that the SBA was in error. In this regard, the Notice stated that, notwithstanding the prior transfer to the Office of Liquidation, the SBA would suspend liquidation activities during the Cure Period to allow Elk the opportunity to cure its condition of capital impairment to the SBA’s satisfaction.

On March 20, 2012, Elk filed a lawsuit against the SBA and its Administrator. The following day, in connection with preliminary discussions regarding such litigation, the SBA represented that it would suspend liquidation activities involving Elk and refrain from taking any action to revoke Elk’s license as an SBIC until April 25, 2012. For additional information regarding such litigation see Note 12 to the consolidated financial statements.

On June 1, 2012, Elk received a written notice from the SBA (the “Second SBA Notice”) that declared Elk’s entire indebtedness to the SBA, including principal, accrued interest and any other amounts owed by Elk to the SBA pursuant to Elk’s outstanding debentures, to be immediately due and payable. The Second SBA Notice indicates that such acceleration of Elk’s obligations relates to an event of default under Elk’s outstanding debentures resulting from Elk’s condition of capital impairment described above, which, according to the Second SBA Notice, Elk failed to cure within applicable cure periods.

According to the Second SBA Notice, as of May 25, 2012, Elk was indebted to the SBA in the aggregate principal amount of $21,175,000, plus accrued interest of $239,372 (with an additional $2,816 of interest accruing on a per diem basis) (the “Indebtedness”).

The Second SBA Notice stated that Elk was required to remit the entire amount of the Indebtedness to the SBA no later than June 15, 2012. In addition the Second SBA Notice states that the SBA may avail itself of any remedy available to it under the 1958 Act, including institution of proceedings for the appointment of SBA or its designee as receiver for Elk’s assets. In the event Elk is placed into receivership, the interests represented by any such receiver could differ materially from the interests of Ameritrans’ stockholders.

On June 5, 2012, Elk submitted a proposal to cure its condition of capital impairment and return to the active business of providing capital to small business concerns. Notwithstanding the submission of a plan that would permit Elk to remain an active SBIC, SBA requested that Elk submit a proposed settlement plan relating to Elk’s liquidation process to the SBA no later than June 18, 2012. Elk submitted the requested settlement plan which included a proposed schedule for the payment of Elk’s indebted to SBA and alternatives to SBA’s potential attempts to appoint a receiver. Elk subsequently filed an amended complaint in the matter while also pursuing a settlement proposal with the Office of Liquidation. The amended complaint included information that was discovered during Elk’s review of the SBA’s “Administrative Record.”

On October 31, 2012, Elk and the SBA entered into a Settlement Agreement and Mutual Release with respect to Elk’s pending lawsuit against the SBA, pursuant to which Elk agreed to pay the SBA $7,900,000 by the Settlement Effective Date and surrender its SBIC license, in full and final satisfaction of all outstanding SBA leverage owed to the SBA through the Settlement Effective Date plus all additional interest which may accrue through the date the settlement payment is made. See Note 8 for additional details. This settlement is expected to result in a gain from early extinguishment of debt aggregating approximately $13.6 million.

4. Notes Payable

On December 22, 2009, the Company issued $2,025,000 aggregate principal amount of its 8.75% notes due December 2011 (the “December Notes”) in a private offering. Prior to their amendment, as described below, the Notes bore interest at a rate of 8.75%, payable quarterly, but the Company had the option to extend the December Notes until December 2012 at a rate of 5.5%, plus the then-current prime rate. The December Notes are redeemable by the Company at any time upon not less than 30 days prior notice. A member of the Company’s Board of Directors and certain affiliated entities acquired $1,375,000 of the December Notes in the offering. The total amount of interest incurred on the December Notes issued to related parties was $0 and $41,250 for the three months ended September 30, 2012 and 2011, respectively.

On March 24, 2010, the Company issued $975,000 aggregate principal amount of its 8.75% notes due March 2012 (the “March Notes” and, together with the December Notes, the “2009/2010 Notes”) in a private offering. The March Notes have the same terms as the December Notes, except prior to their amendment as described below, the March Notes were scheduled to mature in March 2012. A member of the Company’s Board of Directors, and certain affiliated entities acquired $685,000 of the March Notes in the offering. The total amount of interest incurred on the March Notes issued to related parties was $0 and $20,550 for the three months ended September 30, 2012 and 2011, respectively.

In connection with the issuance of a Senior Secured Note on January 19, 2011 (see below), in order to facilitate certain covenants under this Senior Secured Note relating to the 2009/2010 Notes, the Company entered into an Amendment to Promissory Note (the “Amendment”) with each holder of the 2009/2010 Notes. Pursuant to the Amendment, the interest rate on the 2009/2010 Notes was increased from 8.75% to 12.0% and the maturity date was extended until May 2012. The holders of the 2009/2010 Notes also waived certain covenants contained in the 2009/2010 Notes related to additional borrowings by the Company. In connection with the Amendment, the Company paid a fee equal to 1% of principal, or an aggregate of $30,000, to the holders of the 2009/2010 Notes.

On March 16, 2012, the Company paid the holders of the 2009/2010 Notes an aggregate of $2,650,000 (the “Senior Notes Payoff Amount”) in full satisfaction of the Company’s obligations under the 2009/2010 Notes, including default interest of approximately $77,000. Upon the noteholders’ receipt of such payment, the 2009/2010 Notes and the Company’s obligations thereunder terminated. The Senior Notes Payoff Amount represents an approximate 14.2% discount from the principal, interest and other amounts payable under the 2009/2010 Notes as of date of payment. A member of the Company’s Board of Directors and certain affiliated entities held $2,060,000 principal amount of the 2009/2010 Notes, and as such received approximately $1,820,000 of the Senior Notes Payoff Amount. As a result of the 14.2% discount, the Company realized a gain of $350,000, in the third quarter of fiscal 2012, from the satisfaction of the obligations related to the 2009/2010 Notes.

On January 19, 2011, the Company issued a Senior Secured Note in the principal amount of $1,500,000 (the “Original 2011 Note”) to an unaffiliated lender, Ameritrans Holdings LLC (the “Lender”). The Lender is an affiliate of Renova US Holdings Ltd., the purchaser under the Stock Purchase Agreement (See Note 7, Stock Purchase Agreement). The Original 2011 Note provided for interest at the rate of 12% per annum, except following an event of default under the Original 2011 Note, in which case the Original 2011 Note provided that interest would accrue at the rate of 14%. The Original 2011 Note matured on February 1, 2012.

The Original 2011 Note was originally secured by a pledge of 100% of the issued and outstanding shares of common stock of Elk owned by the Company and was subsequently amended to include all personal property and other assets of the Company other than the common stock and all other equity interests of Elk as provided in the Amended and Restated Pledge Agreement, dated May 5, 2011, between the Company and the Lender (the “Pledge Agreement”).

On April 12, 2011, the Company also entered into an amendment to the Original 2011 Note (the “Note Amendment” and the Original 2011 Note, as amended, the “2011 Note”), which amended a provision of the Original 2011 Note that prohibited the Company from incurring any indebtedness for borrowed money in excess of $250,000. Such provision, as modified by the Note Amendment, provided that the Company would not incur any indebtedness for borrowed money in excess of $250,000 other than indebtedness incurred in the ordinary course of business consistent with past practices for use as working capital in an aggregate principal amount not to exceed $500,000. All other terms of the Original 2011 Note remained in full force and effect. Interest expense incurred in connection with the 2011 Note aggregated $0 and $44,720, respectively, in the three months ended September 30, 2012 and 2011, respectively, without giving effect to any default interest as discussed below.

On January 19, 2012 (the “Notice Date”), the Lender delivered written notice (the “Notice”) to the Company that an event of default under the 2011 Note had occurred and was continuing. Pursuant to the Notice, the Lender declared all outstanding principal, interest (including default interest), fees and other amounts owed by the Company under the 2011 Note to be immediately due and payable. Based on the occurrence of an event of default under the 2011 Note, the Lender also declared an event of default under the Pledge Agreement. The event of default specified in the Notice related to the Company’s failure as of June 30, 2011 to maintain a minimum consolidated net asset value equal to at least $4,000,000, in violation of a covenant contained in the 2011 Note.

As of the Notice Date, the Company’s outstanding indebtedness under the 2011 Note included $1,424,000 million of principal and approximately $36,000 of accrued and unpaid interest, including default interest, or approximately $1,460,000 in the aggregate (the “Indebtedness”). In addition to payment of the Indebtedness, the Lender sought reimbursement of costs and expenses related to the execution, delivery, performance, administration and enforcement of the 2011 Note and Pledge Agreement in an unspecified amount, which the Lender estimated to be approximately $100,000.

The 2011 Note matured on February 1, 2012. On March 7, 2012, the Company paid the Lender $1,420,000 (the “Payoff Amount”) in full satisfaction of the Company’s obligations under the 2011 Note. Upon the Lender’s receipt of such payment, the 2011 Note, the Company’s obligations thereunder, all liens and security interests previously granted by the Company to the Lender to secure such obligations, and the related pledge agreement was terminated. The Payoff Amount represents an approximate 9.8% discount from the principal, interest and other amounts payable under the 2011 Note as of the date of payment. Accordingly, the Company realized a gain of $3,620 in the third quarter of fiscal 2012 from the extinguishment of this debt.

5. Dividends to Stockholders

The following table sets forth the dividends accrued by the Company on its Preferred Stock for the three months ended September 30, 2012, and 2011:


	For the three months ended September 30, 2012
	Dividend Per Share		Amount		Declaration Date	Record Date	Pay Date
Preferred Stock:
First Quarter (July 1, 2012 – September 30, 2012)	$	0.28125	$	84,375	Undeclared


	For the three months ended September 30, 2011
	Dividend Per Share		Amount		Declaration Date	Record Date	Pay Date
Preferred Stock:
First Quarter (July 1, 2012 – September 30, 2011)	$	0.28125	$	84,375	Undeclared

The Company did not declare or pay dividends on its Common stock during the three months ended September 30, 2012 or 2011. Dividends on Preferred Stock accrue whether or not they have been declared. As of September 30, 2012, dividends not declared and in arrears aggregated $759,375.

6. Financial Instruments

Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. The fair values presented have been determined by using available market information and by applying valuation methodologies.

Loans Receivable and Life Settlement Contracts

Loans receivable and life settlement contracts are recorded at their estimated fair value based on discounted expected future cash flows and other factors (see Note 2).

Investment Securities

The estimated fair value of publicly traded equity securities is based on quoted market prices and privately held equity securities are recorded at their estimated fair value (see Note 2).

Debt

The fair value of the SBA debentures was computed using the discounted amount of future cash flows using the Company’s current incremental borrowing rate for similar types of borrowings. The estimated fair values of such debentures as of September 30, 2012 and June 30, 2012 were $21,175,000. The fair value is the same as the recorded value, inasmuch as the SBA has given the Company notice on June 1, 2012 that Elk's entire indebtedness to the SBA was due and payable currently. However, pursuant to an October 31, 2012 settlement agreement between Elk and the SBA, Elk’s obligations under these debentures can be satisfied in full for $7,900,000 and the surrender of Elk’s SBIC license. See Note 3.

7. Stock Purchase Agreement

On April 12, 2011, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Renova US Holdings Ltd. (“Renova”). Subject to the terms and conditions set forth in the Purchase Agreement, the Company agreed to issue and sell to Renova, and Renova agreed to purchase, (i) $25,000,000 of Common Stock of the Company at a price per share equal to the greater of $1.80 and the then-prevailing per share net asset value of the Company at the time of issuance (as determined in accordance with the terms of the Purchase Agreement) (the "Applicable Per Share Purchase Price"), at an initial closing to be held no later than November 30, 2011, following satisfaction or waiver of the conditions to such issuance and (ii) between an additional $35,000,000 to $40,000,000 of additional Common Stock (depending upon the timing of such purchases) at the Applicable Per Share Purchase Price at subsequent closings to be held from time to time, subject to satisfaction of the conditions to such issuances, between the date of the initial closing and the second anniversary of the initial closing, based upon the terms and conditions set forth in the Purchase Agreement.

Requisite stockholder approval of the transactions contemplated by the Purchase Agreement was obtained at a special meeting of stockholders held on June 24, 2011. Consummation of the Initial Closing was subject to certain additional customary closing conditions, as well as the approval of the SBA of the indirect change of ownership and control of the Company’s wholly-owned subsidiary, Elk, which is a SBA licensee.

On September 19, 2011, the Company received a letter from the SBA describing certain concerns related to its change of ownership and control application and requesting certain additional pieces of information. In particular, the SBA informed the Company that the proposed transaction, as then structured, would not satisfy applicable SBA management-ownership diversity requirements. While the Company and its counsel believed that the transaction satisfied all SBA regulatory requirements, the SBA did not concur with that view.

As of November 16, 2011, the Company and Renova terminated the Purchase Agreement, although the Company continued to engage in discussions with Renova regarding potential modifications to the terms of the transaction contemplated by the Purchase Agreement in order to satisfy the SBA interpretation of its management-ownership diversity regulations. As noted, below (see Note 12, Commitments and Contingencies – Litigation), the Company presented a restructured transaction with Renova, specifically drawn to address SBA’s stated concerns. On December 22, 2012, SBA informed Elk that it would not approve the transaction. In light of the SBA’s continued belief that the Renova Transaction, as proposed to be modified, would not satisfy such regulations, on January 19, 2012, Renova advised the Company that Renova was ceasing its efforts to pursue a transaction with the Company and Elk. As a result, the Company and Renova are no longer engaging in discussions regarding a potential financing transaction.

As also discussed in Note 3, in February 2012, the Company presented a potential transaction with another party, which also was rejected by SBA.

8. Commitments and Contingencies

Litigation

Lawsuit Against the SBA

On March 20, 2012, Elk filed a lawsuit against the SBA and its Administrator in the United States District Court for the District of Columbia (the “District Court”) (Case No. 1200438 CKK), seeking temporary, preliminary, and permanent injunctive relief; declaratory relief; and damages (the “Litigation”). The injunctive relief sought by Elk includes: (i) setting aside the SBA’s decision to transfer Elk to the SBA’s Office of Liquidation (see Note 3, Debentures Payable to SBA), (ii) requiring the SBA to provide Elk with a commercially reasonable amount of time to present a plan for curing Elk’s position of capital impairment and (iii) requiring the SBA to accept legitimate commitment letters from qualified investors in the Company as a cure to Elk’s position of capital impairment, so long as those letters guaranty that funds identified in the commitment letters are transferred by the Company to Elk. Elk’s lawsuit also seeks monetary damages in an amount to be determined at trial.

On the evening of March 20, 2012, the SBA and Elk notified the District Court that the SBA had agreed to suspend liquidation activities and take no action to revoke Elk's license for 15 days from March 21, 2012. On March 21, 2012, the District Court held a Scheduling Conference in connection with the Litigation. During the Scheduling Conference, the SBA represented that it would suspend liquidation activities involving Elk and refrain from taking any action to revoke Elk's license until April 25, 2012. This representation on the record by the SBA made Elk's motion for a temporary restraining order seeking to preserve the status quo pending a decision on Elk's motion for a preliminary injunction moot. Also on March 21, 2012, the District Court set (i) a briefing schedule on Elk's motion for a preliminary injunction and (ii) a schedule related to the SBA’s production of a complete certified administrative record concerning the events identified by Elk in the lawsuit that are the subject of the Litigation.

On April 24, 2012, the District Court denied Elk’s motion for a preliminary injunction and ordered the SBA to file a response to Elk’s lawsuit no later than June 4, 2012. Accordingly, since April 25, 2012, the SBA was no longer required to suspend liquidation activities with respect to Elk.

Subsequently, Elk filed an amended complaint in the matter while also pursuing a settlement proposal with the Office of Liquidation. The amended complaint included information that was discovered during Elk’s review of the SBA’s “Administrative Record.”

The SBA made a motion for Summary Judgment in the Litigation and Elk filed its Memorandum of Law in Opposition to SBA's motion for Summary Judgment. Simultaneously with the filing of its reply, Elk filed a motion seeking leave to conduct discovery.

On September 17, 2012, the Court issued a ruling finding it prudent to postpone further briefing on SBA's Motion for Summary Judgment to allow Elk's Motion for Leave to Serve Discovery to be fully briefed. The Court ruled that the Motion for Summary Judgment was held-in-abeyance. The Court ruled that the SBA need not and shall not file a reply until otherwise ordered by the Court. The Court ordered the SBA to file a response to Elk's Motion for Leave to Serve Discovery by no later than October 1, 2012, which was filed; Elk was required to file its reply, if any, by no later than October 11, 2012, which was timely filed.

The Court also stated that the "parties are STRONGLY encouraged to meet and confer in an attempt to resolve their disagreement or narrow the areas of dispute requiring the Court's resolution."

On October 31, 2012 Elk and the SBA entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) with respect to the Litigation. Under the terms of the Settlement Agreement, Elk agreed to pay the SBA $7,900,000 (the “Settlement Payment”) by December 15, 2012 (the “Settlement Effective Date”) and surrender its SBIC license, in full and final satisfaction of all outstanding SBA leverage owed to the SBA through the Settlement Effective Date plus all additional interest, aggregating approximately $600,000, which may accrue through the date the Settlement Payment is made. As of October 31, 2012, Elk's outstanding leverage with the SBA was $21,175,000. Elk also agreed to execute a Consent Order of Receivership, which would be effective only if the Settlement Payment is not made within the required period, appointing the SBA as permanent, liquidating receiver of Elk. In connection with the Settlement Agreement, the parties have agreed to file with the court a Joint Stipulation dismissing the SBA Litigation. The Settlement Agreement includes mutual releases by both parties releasing the other party and various associated entities from any and all actions, causes of action, claims, rights and demands of every kind which such party may have through October 31, 2012. SBA's release of Elk does not include any claims of criminal liability, any claims arising from fraudulent conduct or any claims by any other federal agency of the United States, including the Internal Revenue Service. Pursuant to the Settlement Agreement, the SBA has acknowledged that it is unaware of any such claim referred to in the immediately preceding sentence.

Other

From time to time, the Company is engaged in various legal proceedings incident to the ordinary course of its business. In the opinion of the Company’s management and based upon the advice of legal counsel, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision would result in a material adverse effect on the Company’s results of operations or financial condition.

9. Stock Option Plans

The Company’s employee incentive stock option plan and non-employee director stock option plan expired on May 21, 2009.

The following tables summarize information about the transactions of both stock option plans as of September 30, 2012:


	Stock Options
	Number of Options		Weighted Average Exercise Price Per Share
Options outstanding at June 30, 2012		239,426	$	3.28
Granted		-		-
Canceled		-		-
Expired		-		-
Exercised		-		-
Options outstanding at September 30, 2012		239,426	$	3.28

The following table summarizes information about the stock options outstanding under the Company’s options plans as of September 30, 2012:


	Options Outstanding and Exercisable
Range of Exercise Prices	Number Outstanding At September 30, 2012		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
$3.60		13,888	.64 years	$	3.60
$5.28		60,000	1.16 years	$	5.28
$4.50		20,000	.03 years	$	4.50
$2.36		120,000	1.03 years	$	2.36
$1.78		25,538	1.60 years	$	1.78
$ 1.78-$ 5.28		239,426	.99 years	$	3.28

10. Financial Highlights


	Three Months Ended September 30, 2012			Three Months Ended September 30, 2011			Year Ended June 30, 2012
Net share data
Net asset (liability) value at the beginning of the period	$	(2.11	)	$	(0.40	)	$	(0.40	)
Net investment loss		(0.35	)		(0.34	)		(1.08	)
Net realized and unrealized losses on investments		(0.07	)		(0.09			(0.53	)
Net decrease in net assets from operations		(0.42	)		(0.43	)		(1.61	)
Distributions to Stockholders (4)		(0.02	)		(0.02	)		(.10	)
Total decrease in net asset value		(0.44	)		(0.45	)		(1.71	)
Net asset value at the end of the period	$	(2.55	)	$	(0.85		$	(2.11	)
Per share market value at beginning of period	$	0.11		$	1.17		$	1.17
Per share market value at end of period	$	0.10		$	0.54		$	0.11
Total return (1)		(9.09	)%		(53.85	)%		(90.6	)%
Ratios/supplemental data
Average net liabilities (2) (in 000’s)	$	(7,925	)	$	(2,124	)	$	(4,264	)
Total expense ratio (3)		(74.30	)%		(314.8	)%		142.4	%
Net investment loss to average net assets (liabilities) (5)		(60.45	)%		(214.7	)%		85.7	%


(1)	Total return is calculated by dividing the change in market value of a share of common stock during the year, assuming the reinvestment of dividends on the payment date, by the per share market value at the beginning of the year.
(2)	Average net liabilities excludes capital from preferred stock.
(3)	Total expense ratio represents total expenses divided by average net assets annualized for interim periods.
(4)	Amount represents total dividends on both common and preferred stock divided by weighted average shares.
(5)	Annualized for interim periods.

11. Other Matters

Between September 2011 and January 2012, the Company received notices from The Nasdaq Stock Market (“Nasdaq”) notifying the Company that it did not satisfy various continued listing requirements applicable to the Company’s common stock and preferred stock, including requirements that the Company maintain a minimum bid price for its common stock of $1.00 per share, a minimum of $2.5 million of stockholders’ equity and a minimum market value of publicly held shares of $1 million with respect to the Company’s common stock and its preferred stock. The Company did not regain compliance with Nasdaq’s continued listing requirements and, on May 3, 2012, the Company’s securities were delisted from the Nasdaq Capital Market.

12. Recently Issued Accounting Standards

In August 2012, the FASB issued Accounting Standards Update 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 114 (“SAB No. 114”), Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (“ASU 2012-03”). The update amends various SEC paragraphs pursuant to the issuance of SAB No. 114 and is effective upon issuance. The adoption of the amended guidance in ASU 2012-03 did not have a significant effect on the Company’s financial statements.

In October 2012, the FASB issued Accounting Standards Update 2012-04, Technical Corrections and Improvements (“ASU 2012-04”). The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on The Company’s financial statements.

Other recently issued accounting pronouncements are not expected to have a material impact on the Company’s financial position or results of operations.

13. Subsequent Events

Except for the entry into the SBA Settlement Agreement as discussed in Note 8, Commitments and Contingencies, the Company is not aware of any other significant subsequent events.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information contained in this section should be read in conjunction with the consolidated Financial Statements and Notes thereto appearing in this quarterly report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended June 30, 2012, filed with the Commission by the Company on September 28, 2012, and which is available on the Company’s web site at www.ameritranscapital.com.

CRITICAL ACCOUNTING POLICIES

Investment Valuations

Our loans receivable, net of participations and any unearned discount, are considered investment securities under the 1940 Act and are recorded at fair value. As part of fair value methodology, loans are valued at cost adjusted for any unrealized appreciation (depreciation). Since no ready market exists for these loans, the fair value is determined in good faith by management, and approved by the Board of Directors. In determining the fair value, we and our Board of Directors consider factors such as the financial condition of borrower, the adequacy of the collateral, individual credit risks, historical loss experience, and the relationships between current and projected market rates and portfolio rates of interest and maturities. Foreclosed properties, which represent collateral received from defaulted borrowers, are valued based on appraisals prepared by third parties and market analysis.

Loans are, generally, considered “non–performing” once they become 90 days past due as to principal or interest. The value of past due loans are periodically determined in good faith by management, and if, in the judgment of management, the amount is not collectible and the fair value of the collateral is less than the amount due, the value of the loan will be reduced to fair value.

Equity investments (preferred stock, common stock, LLC interests, LP interest, and stock warrants, including controlled subsidiary portfolio investments) and investment securities are recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation. Investments for which market quotations are readily available are valued at such quoted amounts. If no public market exists, the fair value of investments that have no ready market are determined in good faith by management, and approved by the Board of Directors, based upon assets and revenues of the underlying investee companies as well as general market trends for businesses in the same industry.

We record the investment in life insurance policies at fair value, represented as cost, plus or minus unrealized appreciation or depreciation. The fair value of the investment in life settlement contracts have no ready market and are determined in good faith by management, and approved by the Board of Directors, based on actuarial life expectancy, health evaluations and market trends.

Because of the inherent uncertainty of valuations, our estimates of the values of the investments may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.

Assets Acquired in Satisfaction of Loans

Assets acquired in satisfaction of loans are carried at the lower of the net value of the related foreclosed loan or the estimated fair value less cost of disposal. Losses incurred at the time of foreclosure are charged to the realized losses on loans receivable. Subsequent reductions in estimated net realizable value are charged to operations as losses on assets acquired in satisfaction of loans.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are particularly susceptible to significant change relate to the determination of the fair value of our investments.

Income Recognition

Interest income, including interest on non-performing loans, is recorded on an accrual basis and in accordance with loan terms to the extent such amounts are expected to be collected. We recognize interest income on loans classified as non-performing only to the extent that the fair market value of the related collateral exceeds the specific loan principal balance. Loans that are not fully collateralized and that are in the process of collection are placed on nonaccrual status when, in the judgment of management, the collectability of interest and principal is doubtful.

Contingencies

We are subject to legal proceedings in the course of our daily operations from enforcement of our rights in disputes pursuant to the terms of various contractual arrangements. We may assess the likelihood of any adverse judgment or outcome to these matters as well as a potential range of probable losses. A determination of the amount of reserve required, if any, for these contingencies may be made after analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters.

General

Ameritrans acquired Elk on December 16, 1999. Elk is an SBIC that has been operating since 1980, making loans to (and, to a limited extent, investments in) small businesses, who qualify under SBA Regulations. However, on October 31, 2012, Elk and the SBA entered into a Settlement Agreement and Mutual Release with respect to Elk’s pending lawsuit against the SBA, pursuant to which Elk agreed to pay the SBA $7,900,000 by December 15, 2012 and surrender its SBIC license, in full and final satisfaction of all outstanding SBA leverage owed to the SBA through such date plus all additional interest which may accrue through the date the settlement payment is made. Most of Elk’s business historically consisted of originating and servicing loans collateralized by taxi medallions and loans to and investments in other diversified businesses. Since completing the sale of the medallion portfolio, most of the Company’s net interest income has been generated from its Corporate and Commercial loans. Historically, Elk’s earnings derived primarily from net interest income, which is the difference between interest earned on interest-earning assets (consisting of business loans), and the interest paid on interest-bearing liabilities (consisting of indebtedness to Elk’s banks and subordinated debentures issued to the SBA). Net interest income is a function of the net interest rate spread, which is the difference between the average yield earned on interest-earning assets and the average interest rate paid on interest-bearing liabilities, as well as the average balance of interest-earning assets as compared to interest-bearing liabilities. Unrealized appreciation or depreciation on loans and investments is recorded when Elk adjusts the value of a loan or equity investment to reflect management’s estimate of the fair value, as approved by the Board of Directors.

Results of Operations for the Three Months Ended September 30, 2012 and 2011

Total Investment Income

The Company’s investment income for the three months ended September 30, 2012, decreased $257,217, or 48%, to $274,413, as compared to $531,630 for the three months ended September 30, 2011. The decrease was predominantly due to a timing difference on interest earned on an outstanding loan, as partially offset by a smaller portfolio.

Corporate Loans outstanding as of September 30, 2012, decreased by $6,430,564, or 52%, to $5,883,076, as compared with $12,313,640 at September 30, 2011. The decrease in Corporate Loans outstanding was due to payoffs of approximately $83,000, the sale of six loans for approximately $8,039,000 (primarily, for liquidity purposes) and a decrease in fair value of certain Corporate Loans aggregating approximately $1,364,000. This decrease was partially offset by new fundings and loan discount amortization totaling approximately $3,055,000. For the three months ended September 30, 2012, interest income on Corporate Loans decreased approximately $228,000 to approximately $224,000 from $452,000 in the comparable quarter in the prior fiscal year. The interest earned on Corporate Loans decreased in 2012, as compared with the prior year as a result of the decrease in Corporate Loans.

Commercial Loans outstanding as of September 30, 2012, decreased by $509,808, or 9%, to $5,194,614, as compared with $5,704,422 at September 30, 2011. The decrease in Commercial Loans was due to loan amortization and paid off loans of approximately $375,000 and a downward fair value adjustment of approximately $130,000. For the three months ended September 30, 2012, interest income on Commercial Loans decreased approximately $24,000 to approximately $36,000 from approximately $60,000 in the prior fiscal year’s comparable quarter. This decrease was attributable to paid off loans and an interest payment received in September 2011 of approximately $16,000, relating to non-accruing loans.

Life settlement contracts outstanding as of September 30, 2012 increased by approximately $834,000, or 31%, to $3,490,401, as compared with $2,656,000 at September 30, 2011. This increase was due primarily to additional premium payments as partially offset by a downward adjustment of fair value. The fair value as of September 30, 2012, represents our estimate of the policies’ fair value based upon various factors, including a discounted cash flow analysis of anticipated life expectancies, future premium payments, current market conditions and anticipated death benefits related to the four life insurance policies which have an aggregate face value of $17,250,000.

Operating Expenses

Interest expense for the three months ended September 30, 2012 decreased $141,716, or 35%, to $259,087, as compared to $400,803 for the three months ended September 30, 2011. This was due to the payoff of approximately $4,500,000 of outstanding notes in March 2012.

Salaries and employee benefits for the three months ended September 30, 2012 decreased $167,693, or 39%, to $256,909 when compared to $426,780 for the three months ended September 30, 2011. This decrease was due to a one-time payment in connection with the cancelation of an employment contract which was paid in July 2011 and was partially offset by an increase in officers’ salaries.

Occupancy costs for the three months ended September 30, 2012, remained consistent at $43,983 when compared with $43,297 for the three months ended September 30, 2011.

Legal fees increased $250,861, or 92%, to $524,657 in the first quarter of fiscal 2012 from $273,796 in the corresponding quarter in fiscal 2012 due, primarily, to legal work in connection with our lawsuit with SBA and, to a lesser extent, SEC filings, foreclosure expense, compliance and general legal matters.

Accounting and compliance fees decreased $91,104 or 40% to $137,836 in the first quarter of fiscal 2012 from $228,940 in the corresponding quarter in the prior fiscal year prior. Such decrease was attributable to a $61,204 decrease in general accounting and other compliance fees; a $19,302 decrease in financial management personnel, primarily related to our Chief Financial Officer and a $10,598 decrease in audit fees.

Director fees for the three months ended September 30, 2012 increased $46,969, or 125%, to $84,500 when compared to $37,531 for the three months ended September 30, 2011. Such increase resulted from a management decision to pay retainer fees.

Advisory Fees decreased approximately $46,084, or 100%, to $0 when compared to $46,084 for the three months ended September 30, 2011. This was due to the expiration of our Advisory Agreement in December 2011.

Miscellaneous administrative expenses for the three months ended September 30, 2012, decreased $49,374, to $165,068, or 23%, when compared with $214,442 for the three months ended September 30, 2011. This decrease was due primarily to a reduction of $57,000 of foreclosure expense in the first quarter of fiscal 2012, decrease of miscellaneous fees of approximately $25,000, as partially offset by increases in, insurance expense of approximately $24,000 and printing expense of approximately $8,300.

Decrease in Net Assets from Operations and Net Unrealized/Realized Gains (Losses)

Net decrease in net assets from operations for the three months ended September 30, 2012 was $1,439,316, as compared to a net decrease in assets results from operations for the three months ended September 30, 2011 of $1,435,530. The downward performance in operations in the 2012 three-month period was, primarily, attributable to (i) the decrease in the size of our investment portfolio, which went from an average of approximately $21.6 million in the first quarter of fiscal 2012 to an average of approximately $15.7 million in the first quarter of fiscal 2012; (ii) an overall decrease in expenses to approximately $1.5 million for the three months ended September 30, 2012, as compared with approximately $1.7 million for the three months ended September 30, 2011, as described above, and (iii) a decrease in unrealized loss to approximately $139,000 for the three months ended September 30, 2012 as compared with an unrealized gain of approximately $560,000 for the three months ended September 30, 2011. The realized loss for the three months ended September 30, 2012 was approximately $103,000, as compared with a realized gain of approximately $263,000 for the three months ended September 30, 2011.

Financial Condition at September 30, 2012 and June 30, 2012

Assets and Liabilities

Total assets decreased $981,230 to $17,960,141, at September 30, 2012, as compared with total assets of $18.9 million at June 30, 2012. This decrease was primarily due to a decrease in investments of approximately $852,000, cash of $58,000 and accrued interest receivable of approximately $30,000.

We also had an increase in liabilities at September 30, 2012 compared with June 30, 2012 aggregating approximately $542,000, comprised, primarily, of increases in accrued expenses and other liabilities, accrued interest payable and dividends payable aggregating approximately $199,000, $259,000 and $84,000, respectively. The increase in dividends payable represents fiscal 2013 preferred stock dividends that have not been declared.

Liquidity and Capital Resources

We have historically funded our operations through private and public placements of our securities, bank financing, the issuance to the SBA of our subordinated debentures and internally generated funds. Since 2008, the Company has relied on SBA Debentures, funds from operations and, to a lesser extent, private placements of debt for liquidity. At September 30, 2012, we had negative working capital of approximately $21.9 million. Substantially, all of our cash was subject to restrictions pursuant to SBA regulations. At September 30, 2012, 100% of our total indebtedness of $21,175,000 was attributable to the debentures issued to the SBA with fixed rates of interest plus user fees which results in rates ranging from 4.11% to 5.54%. On June 1, 2012, we received notice from the SBA that, based on an event of default under Elk’s outstanding debentures resulting from Elk’s condition of capital impairment, the entire debenture indebtedness to the SBA, i.e., $21,175,000, plus accrued interest, was immediately due and payable. However, on October 31, 2012, Elk and the SBA entered into a Settlement Agreement and Mutual Release with respect to Elk’s pending lawsuit against the SBA, pursuant to which Elk may pay the SBA $7,900,000 (the “Settlement Payment”) by December 15, 2012 (the “Settlement Effective Date”) and surrender its SBIC license, in full and final satisfaction of all outstanding SBA leverage owed to the SBA through the Settlement Effective Date plus all additional interest which may accrue through the date the Settlement Payment is made. Following the surrender of Elk’s SBIC license, Elk will no longer be eligible to borrow funds pursuant to the SBA’s SBIC program. Elk currently may borrow additional amounts from banks subject to the limitation imposed by its borrowing base agreement with its banks and the SBA, the statutory and regulatory limitations imposed by the SBA and the availability of future bank credit lines. Following the surrender of Elk’s SBIC license, Elk will no longer be subject to SBA regulations.

Our sources of liquidity have historically been credit lines with banks, long-term SBA debentures that are issued to or guaranteed by the SBA, private sources of debt and equity capital and loan amortization and prepayment. As a RIC, we distribute at least 90% of our investment company taxable income, if any. Consequently, we primarily rely upon external sources of funds to finance growth. However, as a result of Elk’s having been referred to the SBA’s Office of Liquidation, Elk is not eligible for additional financing from the SBA and following the surrender of Elk’s SBIC license, Elk will not be eligible in the future. In addition, the SBA’s referral of Elk to the Office of Liquidation, and Elk’s agreement to surrender its SBIC license may materially and adversely affect our ability to obtain third party financing.

We invested in life settlement contracts which require us to continue premium payments to keep the policies in force through each insured’s life expectancy or until such time the policies are sold. We may sell the policies at any time, at our sole discretion. However, if we choose to keep the policies, as of and after September 30, 2012, aggregate premium payments due through the life expectancy of the insureds are approximately $4,101,000 through June 30, 2017 and approximately $683,000, thereafter (see Note 2 to the consolidated financial statements).

Loan amortization and prepayments also provide a source of funding for Elk. Prepayments on loans are influenced significantly by general interest rates, economic conditions and competition.

Like Elk, Ameritrans will distribute at least 90% of its investment company taxable income and, accordingly, we will continue to rely upon external sources of funds to finance growth. In order to provide the funds necessary for our expansion strategy, we expect to raise additional capital and to incur, from time to time, additional bank indebtedness. There can be no assurances that such additional financing will be available on acceptable terms.

At September 30, 2012, we had cash on hand and cash equivalents aggregating approximately $125,000 and negative working capital of approximately $21.9 million. Substantially, all of our cash was subject to restrictions pursuant to SBA regulations at September 30, 2012.

On April 12, 2011, we entered into the Purchase Agreement with Renova. (“Renova”). Subject to the terms and conditions set forth in the Purchase Agreement, we agreed to issue and sell to Renova, and Renova agreed to purchase, (i) $25,000,000 of our Common Stock at the Applicable Per Share Purchase Price, at an initial closing to be held no later than November 30, 2011, following satisfaction or waiver of the conditions to such issuance and (ii) between an additional $35,000,000 to $40,000,000 of additional Common Stock (depending upon the timing of such purchases) at the Applicable Per Share Purchase Price at subsequent closings to be held from time to time, subject to satisfaction of the conditions to such issuances, between the date of the initial closing and the second anniversary of the initial closing, based upon the terms and conditions set forth in the Purchase Agreement.

Following receipt of notice from the SBA that, in its view, the proposed transaction, as then structured, would not satisfy applicable SBA management-ownership diversity requirements, on November 16, 2011, we and Renova terminated the Purchase Agreement, although we continued to engage in discussions with Renova regarding potential modifications to the terms of the transaction contemplated by the Purchase Agreement in order to satisfy the SBA interpretation of its management-ownership diversity regulations. We presented a restructured transaction with Renova, specifically drawn to address SBA’s stated concerns. On December 22, 2011, SBA informed Elk that it would not approve the transaction. In light of the SBA’s continued belief that the Renova Transaction, as proposed to be modified, would not satisfy such regulations, on January 19, 2012, Renova advised us that Renova was ceasing its efforts to pursue a transaction with us and Elk. As a result, Renova and we are no longer engaging in discussions regarding a potential financing transaction.

In February 2012, we presented a potential transaction with another party, which was rejected by SBA. On March 12, 2012, Elk filed a lawsuit against the SBA and its administrator.

On June 1, 2012, Elk received a written notice (the “Notice”) from the SBA that declared Elk’s entire indebtedness to the SBA, including principal, accrued interest and any other amounts owed by Elk to the SBA pursuant to Elk’s outstanding debentures, to be immediately due and payable. The Notice indicates that such acceleration of Elk’s obligations relates to an event of default under Elk’s outstanding debentures resulting from Elk’s condition of capital impairment described above, which, according to the Notice, Elk failed to cure within applicable cure periods.

According to the Notice, as of May 25, 2012, Elk was indebted to the SBA in the aggregate principal amount of $21,175,000, plus accrued interest of $239,372 (with an additional $2,816 of interest accruing on a per diem basis) (the “Indebtedness”) (as of September 30, 2012, Elk’s aggregate Indebtedness to the SBA was $21,517,506, including $342,506 of interest and fees).

The Notice stated that Elk was required to remit the entire amount of the Indebtedness to the SBA no later than June 15, 2012. In addition the Notice stated that the SBA may avail itself of any remedy available to it under the Act, including institution of proceedings for the appointment of SBA or its designee as receiver for Elk’s assets. In the event Elk were to be placed into receivership, the interests represented by any such receiver could differ materially from the interests of Ameritrans’ stockholders.

On June 5, 2012, Elk submitted a proposal to cure its condition of capital impairment and return to the active business of providing capital to small business concerns. Notwithstanding the submission of a plan that would permit Elk to remain an active SBIC, SBA requested that Elk submit a proposed settlement plan relating to Elk’s liquidation process to the SBA no later than June 18, 2012. Elk submitted the requested settlement plan by the June 18, 2012 deadline. Elk subsequently filed an amended complaint in the matter while also pursuing a settlement proposal with the Office of Liquidation. The amended complaint includes information that was discovered during Elk’s review of the SBA’s “Administrative Record.”

As discussed above, on October 31, 2012, Elk and the SBA entered into a Settlement Agreement and Mutual Release with respect to Elk’s pending lawsuit against the SBA, pursuant to which Elk may pay the Settlement Payment to the SBA by the Settlement Effective Date and surrender its SBIC license, in full and final satisfaction of all outstanding SBA leverage owed to the SBA through the Settlement Effective Date plus all additional interest which may accrue through the date the Settlement Payment is made. Ameritrans believes that it will be in a position to cause Elk to make the Settlement Payment within the applicable time period set forth in the Settlement Agreement. However, there can be no assurance that Elk will have such funds or as to the terms of any financing that may be available to Ameritrans and/or Elk in order to procure such funds.

As a condition to the SBA’s willingness to enter into the Settlement Agreement, Elk agreed to execute a Consent Order of Receivership, which will be effective only if the Settlement Payment is not made within the required period, appointing the SBA as permanent, liquidating receiver. In the event the Consent Order of Receivership becomes effective, the SBA may proceed to liquidate Elk. If such liquidation of Elk were to occur, Ameritrans may be required to terminate certain of its employees and may no longer be able to provide financing to small business concerns. In addition, Elk could be required to dispose of its assets in a forced sale that could result in proceeds less than the carrying value of the asset being sold. In the event Elk is forced to liquidate, our interest in Elk may lose all value, which would have a material adverse effect on our business, financial condition and results of operations and we may be forced to cease operations and liquidate or seek bankruptcy protection, in which case our shareholders may receive little or no value for their investment in our securities.

We are actively pursuing an alternative transaction and alternative sources of financing to make the Settlement Payment and to continue and grow our business. There is no assurance that any sources of financing will be available or what the terms of any alternative transaction would be.

Recently Issued Accounting Standards

Refer to Note 12 in the accompanying consolidated financial statements for a summary of the recently issued accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company’s business activities contain elements of risk. The Company considers the principal types of risk to be fluctuations in interest rates and portfolio valuations. The Company considers the management of risk essential to conducting its businesses. Accordingly, the Company’s risk management systems and procedures are designed to identify and analyze the Company’s risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs.

The Company values its investment portfolio at fair value as determined in good faith by the Company’s Board of Directors in accordance with the Company’s valuation policy. Unlike certain lending institutions, the Company is not permitted to establish reserves for loan losses. Instead, the Company must value each individual investment and portfolio loan on a quarterly basis. The Company records unrealized depreciation on investments and loans when it believes that an asset has been impaired and full collection is unlikely. Without a readily ascertainable market value, the estimated value of the Company’s portfolio of investments may differ significantly from the values that would be placed on the investment portfolio if there existed a ready market for the investments. The Company adjusts the valuation of the portfolio quarterly to reflect the Board of Directors’ estimate of the current fair value of each component of the portfolio. Any changes in estimated fair value are recorded in the Company’s statement of operations as net unrealized appreciation or depreciation on investments.

In addition, the illiquidity of our investment portfolio may adversely affect our ability to dispose of investments at times when it may be advantageous for us to liquidate such investments. Also, if we were required to liquidate some or all of the investments in the portfolio, the proceeds of such liquidation might be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we loan and invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. As interest rates rise, our interest costs increase, decreasing the net interest rate spread we receive and thereby adversely affect our profitability. Although we intend to continue to manage our interest rate risk through asset and liability management, including the use of interest rate swaps, general rises in interest rates will tend to reduce our interest rate spread in the short term.

Assuming that the assets and liabilities were to remain constant and no actions were taken to alter the existing interest rate sensitivity, based on the balances at September 30, 2012, a hypothetical immediate 1% increase in interest rates would have resulted in an additional net increase in net assets from operations of $28,670 at September 30, 2012. This is based on a 1% increase in the Company’s loans receivable at variable interest rate terms. There is no offset to this because, at September 30, 2012, the Company had no outstanding variable rate loans payable. This hypothetical does not take into account interest rate floors or caps on the Company’s loan receivable portfolio. No assurances can be given however, that actual results would not differ materially from the potential outcome simulated by these estimates.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate disclosure controls and procedures (as defined in Rules 13a-15( e ) and 15d-15( e) under the Exchange Act). Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures. Based on such evaluation, our management, including our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2012.

Because of their inherent limitations, disclosure controls and procedures may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the three months ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The matters discussed in this Quarterly Report, as well as in future oral and written statements by management of Ameritrans Capital Corporation, that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking statements contained in this Quarterly Report include but are not limited to statements as to:

our ability to continue as a going concern;

our ability to operate without Elk’s SBIC license

our ability to satisfy the terms of our settlement agreement with the SBA

our future operating results;

our business prospects and the prospects of our existing and prospective portfolio companies;

the impact of investments that we expect to make;

our informal relationships with third parties;

the dependence of our future success on the general economy and its impact on the industries in which we invest;

the ability of our portfolio companies to achieve their objectives;

our expected financings and investments;

our regulatory structure and tax treatment;

our ability to operate as a BDC and a RIC; and

the adequacy of our cash resources and working capital.

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report.

PART II. OTHER INFORMATION

INFORMATION INCORPORATED BY REFERENCE. Certain information previously disclosed in Part I of this quarterly report on Form 10-Q are incorporated by reference into Part II of this quarterly report on Form 10-Q.

Item 1. Legal Proceedings

On March 20, 2012, Elk filed a lawsuit against the SBA and its Administrator in the United States District Court for the District of Columbia (the “District Court”) (Case No. 1200438 CKK), seeking temporary, preliminary, and permanent injunctive relief; declaratory relief; and damages (the “Litigation”). The injunctive relief sought by Elk includes: (i) setting aside the SBA’s decision to transfer Elk to the SBA’s Office of Liquidation (see Note 4, Debentures Payable to SBA), (ii) requiring the SBA to provide Elk with a commercially reasonable amount of time to present a plan for curing Elk’s position of capital impairment and (iii) requiring the SBA to accept legitimate commitment letters from qualified investors in the Company as a cure to Elk’s position of capital impairment, so long as those letters guaranty that funds identified in the commitment letters are transferred by the Company to Elk. Elk’s lawsuit also seeks monetary damages in an amount to be determined at trial.

While Elk believed the settlement conditions proposed by the SBA were vague and created additional uncertainty, in a series of communications designed to create greater certainty, Elk expressed its willingness to agree to substantially all of the terms of the SBA’s proposal and in accordance with SBA’s proposal and committed to cure its capital impairment within 60 days from the date of any such settlement. Moreover, Elk committed to a capital infusion within that time period sufficient to reduce Elk’s capital impairment percentage below 35%, a level that is significantly below the 40% threshold required under SBA regulations. Elk also advised the SBA of its view that, based on Elk’s historic returns, the capital infusion with which Elk proposed to cure its capital impairment would be sufficient to return Elk to profitability and would be advantageous to the SBA inasmuch as it would permit Elk to continue to pay interest on its SBA debentures and repay certain debentures that are scheduled to mature in October 2012. More importantly, an amicable settlement would permit Elk to return to the active business of providing capital to small businesses. In its various communications, Elk offered to meet in person with representatives of SBA to discuss its proposal.

Although Ameritrans believed its counter-proposals were consistent in material respects with the proposal initially set forth by the SBA, on May 16, 2012 the SBA indicated, through an e-mail received from SBA’s counsel, that the SBA “was not interested in exploring those proposals,” refused to consider a refinancing of Elk’s debentures and will be “proceeding with liquidation activities.” Ameritrans believes that the SBA’s response to its settlement proposals is consistent with its arbitrary and capricious conduct to date.

According to the Notice, as of May 25, 2012, Elk was indebted to the SBA in the aggregate principal amount of $21,175,000, plus accrued interest of $239,372 (with an additional $2,816 of interest accruing on a per diem basis) (the “Indebtedness”) (as of June 30, 2012, Elk’s aggregate Indebtedness to the SBA was $21,517,506, including $342,506 of interest and fees).

The Notice stated that Elk was required to remit the entire amount of the Indebtedness to the SBA no later than June 15, 2012. In addition the Notice stated that the SBA may avail itself of any remedy available to it under the Act, including institution of proceedings for the appointment of SBA or its designee as receiver for Elk’s assets. In the event Elk is placed into receivership, the interests represented by any such receiver could differ materially from the interests of Ameritrans’ stockholders.

Elk filed an amended complaint in the matter while also pursuing a settlement proposal with the Office of Liquidation. The amended complaint includes information that was discovered during Elk’s review of the SBA’s “Administrative Record.”

On October 31, 2012 Elk and the SBA entered into the Settlement Agreement with respect to the Litigation. Under the terms of the Settlement Agreement, Elk agreed to pay the SBA the $7,900,000 Settlement Payment by the Settlement Effective Date and surrender its SBIC license, in full and final satisfaction of all outstanding SBA leverage owed to the SBA through the Settlement Effective Date plus all additional interest which may accrue through the date the Settlement Payment is made. As of the October 31, 2012, Elk's outstanding leverage with the SBA was $21,175,000. Elk also agreed to execute a Consent Order of Receivership, which would be effective only if the Settlement Payment is not made within the required period, appointing the SBA as permanent, liquidating receiver of Elk. In connection with the Settlement Agreement, the parties have agreed to file with the court a Joint Stipulation dismissing the SBA Litigation. The Settlement Agreement includes mutual releases by both parties releasing the other party and various associated entities from any and all actions, causes of action, claims, rights and demands of every kind which such party may have through October 31, 2012. SBA's release of Elk does not include any claims of criminal liability, any claims arising from fraudulent conduct or any claims by any other federal agency of the United States, including the Internal Revenue Service. Pursuant to the Settlement Agreement, the SBA has acknowledged that it is unaware of any such claim referred to in the immediately preceding sentence.

In the event the Consent Order of Receivership becomes effective, the SBA may proceed to liquidate Elk. If such liquidation of Elk were to occur, Ameritrans may be required to terminate certain of its employees and may no longer be able to provide financing to small business concerns. In addition, Elk could be required to dispose of its assets in a forced sale that could result in proceeds less than the carrying value of the asset being sold. In the event Elk is forced to liquidate, our interest in Elk may lose all value, which would have a material adverse effect on our business, financial condition and results of operations and we may be forced to cease operations and liquidate or seek bankruptcy protection, in which case our shareholders may receive little or no value for their investment in our securities.

Except for the matter referred to above, the Company is not currently a party to any material legal proceeding. From time to time, the Company is engaged in various legal proceedings incident to the ordinary course of its business. In the opinion of the Company’s management and based upon the advice of legal counsel, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision would result in a material adverse effect on the Company’s results of operations or financial condition.

Item 1A. Risk Factors

Part I, Item 1A — “Risk Factors,” of our Annual Report on Form 10-K for the year ended June 30, 2012 (the “2012 Annual Report”), describes important factors that could materially affect our business, financial condition and/or future results and cause our operating results to differ materially from those indicated, projected or implied by forward-looking statements made in this Quarterly Report or presented elsewhere by management from time to time. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company; additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results and cause our operating results to differ materially from those indicated, projected or implied by forward-looking statements made in this Quarterly Report or presented elsewhere by management from time to time.

There were no material changes during the three months ended September 30, 2012 to the risk factors set for in the 2012 Annual Report, except for the addition of the following risks:

The surrender of Elk’s SBIC license could materially and adversely affect our business.

The Settlement Agreement and Mutual Release between Elk and the SBA provides, among other things, that Elk will surrender its SBIC license by December 15, 2012. Following the surrender of Elk’s SBIC license, Elk will no longer be eligible for additional financing from the SBA, which it has relied on historically. In addition, the surrender of Elk’s SBIC license may materially and adversely affect our ability to raise capital in public or private markets, which is critical to the execution of our business strategy. If we are unable to attract alternative sources of financing on acceptable terms, or at all, our liquidity, capital resources, results of operations and ability to continue as a going concern could be materially harmed.

If Elk fails to comply with the terms of its settlement agreement with the SBA on a timely basis, we and the value of our securities could be materially and adversely affected.

On October 31, 2012 Elk and the SBA entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) with respect to Elk’s pending lawsuit against the SBA. Under the terms of the Settlement Agreement, Elk agreed to pay the $7,900,000 Settlement Payment to the SBA by December 15, 2012 and surrender its SBIC license, in full and final satisfaction of all outstanding SBA leverage owed to the SBA through such date plus all additional interest which may accrue through the date the Settlement Payment is made. Elk also agreed to execute a Consent Order of Receivership, which would be effective only if the Settlement Payment is not made within the required period, appointing the SBA as permanent, liquidating receiver of Elk. There can be no assurance that Elk will have sufficient funds to make the Settlement Payment on a timely basis. If Elk fails to timely make the Settlement Payment, the SBA may place Elk into receivership, in which the SBA or its designee would serve as the receiver. The interests represented by any such receiver could differ materially from the interests of our stockholders. In the event Elk is placed in receivership or is otherwise forced to liquidate, our interest in Elk may lose all value, which would have a material adverse effect on our business, financial condition and results of operations. If Elk is placed into receivership, we may be forced to cease operations and liquidate or seek bankruptcy protection, in which case shareholders may receive little or no value for their investment in our securities. In addition, Elk would, likely, not be permitted to make any new investments or significant expenditures without the SBA’s prior approval.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Default Upon Senior Securities

See our Current Report on Form 8-K filed with the Securities and Exchange Commission on January 25, 2012 and Note 4 to our consolidated financial statements, each of which is incorporated herein by reference.

We have not declared or paid dividends on our 9-3/8% Cumulative Participating Redeemable Preferred Stock; $.01 par value, ($12.00 face value) for the quarterly periods ended September 30, 2010 through September 30, 2012. Accordingly, as of the date of this report, an aggregate of $759,375 of dividends on such preferred stock have accrued, but have not been declared or paid.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

The Exhibits filed as part of this report on Form 10-Q are listed on the Exhibit Index immediately preceding such Exhibits, which Exhibit index is incorporated by reference.

Exhibit Index

(a )

Exhibits


31.1	Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (attached hereto)
31.2	Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (attached hereto)
32.1	Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (attached hereto)
32.2	Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (attached hereto)

(All other items of Part II are inapplicable)

AMERITRANS CAPITAL CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMERITRANS CAPITAL CORPORATION

Dated: November 14, 2012


	By:	/s/ Michael Feinsod
		Michael Feinsod
		Chief Executive Officer and President

Attached files

AMERITRANS CAPITAL CORP Reports

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