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 therewith 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, 2008, filed with the Commission by the Company on September 29, 2008 and which is available on the Company's web site at www.ameritranscapital.com.

CRITICAL ACCOUNTING POLICIES

Change in Financial Statement Presentation

Effective for the year ended June 30, 2008, and the three months and six months ended December 31, 2008, the Company has revised its financial statements to be presented in accordance with Article 6 of Regulation S-X as an investment company. Due to the revised format, the Company made certain reclassifications of amounts previously reported in its prior period statements in order to conform to the current year presentation. Although the reclassifications resulted in changes to certain line items in the previously filed financial statements, the overall effect of the reclassifications noted below did not impact total stockholder's equity (or net assets available). Below are the primary items affected by the reclassifications made:

·

Unrealized gains and losses previously reported as part of "other comprehensive income (loss), net" were reclassified to "net unrealized gains (losses) on investments" in the statement of operations. The effect of such reclassification also changed previously reported amounts available to common shareholders.

·

Gains and losses on sales of investments previously reported as part of "total investment income, net" in the statement of operations were reclassified to "net realized gains (losses) on investments."

·

Net write-off and depreciation on interest and loans receivable, previously reported as part of "total operating expenses" in the statement of operations were reclassified to "net unrealized gains (losses) on investments" and "net realized gains (losses) on investments."

The change in format also resulted in the statement of stockholders' equity essentially being replaced with the statement of changes in net assets available, which is now presented. In addition, the schedule of investments has been expanded and certain other disclosures were added, such as the "financial highlights." We believe the changes noted above conform to the filing format for the Company, as a BDC, and will provide a meaningful representation of the Company's operations going forward.

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, the Company and 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 similarly.

Loans are 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 (common stock and warrants, including certain controlled subsidiary portfolio investments) and investment securities are recorded at fair value.

The Company records 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 secondary market conditions, policy characteristics and actuarial life expectancy, including health evaluations.

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.

Effective July 1, 2008, the Company adopted SFAS 157, which expands the application of fair value accounting for investments.

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 unrealized depreciation 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 the Company's investments.

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.

Contingencies

The Company is subject to legal proceedings in the course of its daily operations from enforcement of its rights in disputes pursuant to the terms of various contractual arrangements. In this connection, the Company assesses 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 is made after careful 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. Most of Elk's business historically consisted of originating and servicing loans collateralized by New York City, Boston, Chicago and Miami taxi medallions, but Elk also makes loans to and investments in other diversified businesses. 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 depreciation on loans and investments is recorded when Elk adjusts the value of a loan to reflect Management's estimate of the fair value, as approved by the Board of Directors.

Results of Operations for the Three Months Ended December 31, 2008 and 2007

Total Investment Income

The Company's investment income for the three months ended December 31, 2008 decreased $626,975, or 39%, to $970,744 as compared to the three months ended December 31, 2007. The decrease in investment income between the periods can be attributed to lower interest

rates charged on the total loan portfolio for the quarter, but is primarily due to an overall decrease in the size of the Company's loan receivable portfolio.

Fees and other income increased by $30,654 for the three months ended December 31, 2008, or 52% to $89,355 as compared to the three months ended December 31, 2007, primarily due to late fees paid by borrowers.

Interest income for the three months ended December 31, 2008 decreased $657,629 to $881,389 as compared to the three months ended December 31, 2007. This decrease was primarily due to the sale of substantially all of the taxicab medallion loans receivable (see Note 2 of the consolidated financial statements). In addition, the interest rate earned on taxicab medallion loans decreased in 2008 as compared with the prior year period. Interest income also decreased on the Commercial Loan portfolio during the three months ended December 31, 2008 as compared to the three months ended December 31, 2007. This was primarily due to lower interest rates, which was partially offset by stronger performance in the remaining portfolio, interest rate "floors" and collection of past due interest. However, the interest earned on the Company's Corporate Loan portfolio increased for the three months ended December 31, 2008 as compared to the three months ended December 31, 2007. This was primarily due to an increase in Corporate Loans outstanding, which was partially offset by amortization of existing Corporate Loans and lower interest rates. The interest rate earned on Corporate Loans decreased in 2008, as compared with the prior year, primarily due to decreases in LIBOR. This decrease was partially offset by a small increase in Corporate Loans, higher rates earned on loans originated in this fiscal year, the use of LIBOR "floors" in loan agreements, and increases in rates on existing loans due to covenant resets.

The Company expects significantly lower interest income until new loans are added to the Company's portfolio.

Life settlement contracts outstanding increased by $90,623, or 4%, as compared with the balance at December 31, 2007. The interest rate on these contracts was constant over the two periods, resulting in an increase in interest income as compared with the three months ended December 31, 2007.

Operating Expenses

Interest expense for the three months ended December 31, 2008 decreased $387,732, or 59%, to $266,095 as compared to the three months ended December 31, 2007. This decrease was due to the decrease in LIBOR when compared with the three months ended December 31, 2007, but was primarily due to an overall decrease in the outstanding borrowings due to banks, since funds were used from the sale of substantially all of the taxi medallion loans receivable to pay off bank debt.

Salaries and employee benefits for the three months ended December 31, 2008 increased $323,454 or 70% when compared to the three months ended December 31, 2007. This increase primarily reflects the costs associated with a one-time payment to an officer pursuant to the restructuring of his employment agreement and periodic increases to other employee salaries.

Occupancy costs for the three months ended December 31, 2008 increased $11,214 or 16%, when compared with three months ended December 31, 2007 due to general rent increases as well as increased overhead expenses.

Professional fees for the three months ended December 31, 2008 increased $208,352 or 142% when compared to the three months ended December 31, 2007.
This increase is due primarily to an increase in legal, accounting fees and internal control consulting fees due to non-recurring expenses relating to Sarbanes Oxley compliance and changes in financial statement presentation.
Miscellaneous administrative expenses increased $2,554 or 1% when compared with the prior year.

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

Net decrease in net assets from operations increased to $(1,307,397) for the three months ended December 31, 2008 from $(225,401) for the three months ended December 31, 2007, primarily due to reductions in the fair value of certain investments, write downs of certain loans receivable, the write down of the value of the Company's equity interest in Western Pottery LLC, fees incurred pursuant to the taxi medallion portfolio sale, decreases in interest income and the increases in operating expenses discussed above. Dividends for Participating Preferred Stock were unchanged at $84,375 for the three months ended December 31, 2008 and 2007.

Results of Operations for the Six Months Ended December 31, 2008 and 2007

Total Investment Income

The Company's investment income for the six months ended December 31, 2008 decreased $808,931, or 25%, to $2,430,205 as compared to the six months ended December 31, 2007. The decrease in investment income between the periods can be attributed to lower interest rates charged on the total loan portfolio for the quarter, but is primarily due to an overall decrease in the size of the Company's loan receivable portfolio.

Fees and other income increased by $14,361 for the six months ended December 31, 2008, or 9% to $169,904 as compared to the six months ended December 31, 2007.

Interest income for the six months ended December 31, 2008 decreased $823,292 to $2,260,301 as compared to the six months ended December 31, 2007. This decrease was primarily due to the sale of substantially all of the taxicab medallion loans receivable (see Note 2 of the consolidated financial statements). In addition, the interest rate earned on medallion loans decreased in 2008 as compared with the prior year. Interest income also decreased on the Commercial Loan during the six months ended December 31, 2008 as compared to the six months ended December 31, 2007, primarily due to lower interest rates which was partially offset by stronger performance in the remaining portfolio, interest rate "floors" and collection of past due interest. However, the interest earned on the Company's Corporate Loan portfolio increased for the six months ended December 31, 2008 as compared to the six months ended December 31, 2007, primarily due to an increase in Corporate Loans outstanding, which was partially offset by amortization of existing Corporate Loans and lower interest rates. The interest rate earned on Corporate Loans decreased in 2008, as compared with the prior year, primarily due to decreases in LIBOR. This decrease was partially offset by a small increase in Corporate

Loans, higher rates earned on loans originated in this fiscal year, the use of LIBOR "floors" in loan agreements, and increases in rates on existing loans due to covenant resets.

Life settlement contracts outstanding increased by $90,623, or 4%, as compared with the balance at December 31, 2007. The interest rate on these contracts was constant over the two periods, resulting in an increase in interest income as compared with the six months ended December 31, 2007.

Operating Expenses

Interest expense for the six months ended December 31, 2008 decreased $530,514, or 41%, to $753,374 as compared to the six months ended December 31, 2007. This decrease was due to the reduction in the Loans Outstanding and a decrease in LIBOR, but was primarily due to an overall decrease in the outstanding borrowings due to banks, since funds were used from the sale of substantially all of the taxi medallion loans receivable to pay off bank debt.

Salaries and employee benefits for the six months ended December 31, 2008 increased $382,289 or 43% when compared to the six months ended December 31, 2007. This increase primarily reflects the costs associated with a one-time payment to an officer pursuant to the restructuring of his employment agreement and periodic increases to employee salaries.

Occupancy costs for the six months ended December 31, 2008 increased $16,231 or 12%, when compared with six months ended December 31, 2007 due to general rent increases as well as increased overhead expenses.

Professional fees for the six months ended December 31, 2008 increased $441,131 or 126% when compared to the six months ended December 31, 2007. This increase is due primarily to an increase in legal, accounting fees and internal control consulting fees due to non-recurring expenses relating to Sarbanes Oxley compliance and changes in financial statement presentation. Miscellaneous administrative expenses increased $89,110 or 21% when compared with the prior year primarily due to an increase in fees relating to administration of loans of approximately $50,000, an increase in computer maintenance of approximately $13,500 and an increase in costs relating to the Company's website of approximately $14,500.

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

Net decrease in net assets from operations increased to $(1,786,003) for the six months ended December 31, 2008 from $(221,481) for the six months ended December 31, 2007, primarily due to reductions in the fair value of certain investments, reductions in the fair value of the Company's medallion loans receivable portfolio due to modifications of the purchase price in the Loan Purchase Agreement, the write down of the value of the Company's equity interest in Western Pottery LLC, write downs of certain loans receivable, decreases in interest income and the increases in operating expenses discussed above.
Dividends for Participating Preferred Stock were unchanged at $168,750 for the six months ended December 31, 2008 and 2007.

Financial Condition at December 31, 2008 and June 30, 2008

Balance Sheet

Total assets decreased $29,822,702 to $32,158,766 at December 31, 2008 as compared to June 30, 2008 total assets of $61,981,468. This decrease was primarily due to a decrease in investments of $30,187,368, primarily due to the sale of substantially all of the taxi medallion loans receivable, partially offset by an increase in cash and equivalents of $618,946. Total liabilities decreased during the period by $27,925,218 primarily due to repayments against outstanding bank credit lines by using funds received from the proceeds of the sale of substantially all of the taxi medallion loans receivable. This resulted in a net decrease of $27,495,697 in short-term bank borrowings.

Liquidity and Capital Resources

The Company has funded its operations through private and public placements of its securities, bank financing, the issuance to the SBA of its subordinated debentures and internally generated funds.

At June 30, 2008, the Company had loan agreements with three (3) banks for lines of credit aggregating $40,000,000 of which $28,095,697 was outstanding under these lines. The lines bore interest at the lower of either the reserve adjusted LIBOR rate plus 1.5% or the banks' prime rates minus 0.50%. The bank lines were scheduled to mature on or about October 30, 2008. On October 29, 2008, following the closing of the sale of substantially all of the taxi medallion loan portfolio (see Note 2) the Company paid the banks in full all principal and accrued interest due on the three lines.

At December 31, 2008, approximately 96% of the Company's indebtedness was due to debentures issued to the SBA with fixed rates of interest plus user fees resulting in rates ranging from 4.99% to 5.54%. whereas approximately 4% of Elk's indebtedness was represented by indebtedness to its banks and other lenders with variable rates ranging from 4.5% to 5%. At December 31, 2008, the Company had available $1,315,000 of credit lines from its banks, of which $715,000 was available to draw down as of that date, subject to further discussions and negotiations on certain terms with the banks, limitations imposed by its borrowing base agreement with its banks and the SBA, the statutory and regulatory limitations imposed by the SBA and the availability of funds. As of February 15, 2009, the Company had available $1,000,000 of credit lines from its banks, of which $400,000 was available to draw down as of that date, subject to limitations imposed by its borrowing base agreement with its banks and the SBA, the statutory and regulatory limitations imposed by the SBA and the availability of funds.

In September 2006, the Company invested in life settlement contracts which require the company to continue premium payments to keep the policies in force through the insured's life expectancy, or until such time the policies are sold.
The Company may sell the policies at any time, in its sole discretion. However, if the Company chooses to keep the policies, as of and after December 31, 2008, premium payments due through the life expectancy of the insured are approximately $4,950,000 over the next five years and $5,400,000 thereafter.

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

The Company will distribute at least 90% of its investment company taxable income and, accordingly, will continue to rely upon external sources of funds to finance growth. To provide the funds necessary for expansion, Management expects to raise additional capital and to incur, from time to time, additional bank indebtedness and to obtain SBA loans. In December 2008, the Company applied to the SBA for loans in the aggregate amount of $15,000,000. There can be no assurances that such additional financing will be available on acceptable terms to the Company or at all.

Recently Issued Accounting Standards

In October 2008, the FASB issued Staff Position No. 157-3 - Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active, or FSP 157-3. FSP 157-3 provides an illustrative example of how to determine the fair value of a financial asset in an inactive market. FSP 157-3 does not change the fair value measurement principles set forth in SFAS 157 (see Note 2 for a description of SFAS 157). Since adopting SFAS 157 in July 2008, our process for determining the fair value of our investments has been, and continues to be, consistent with the guidance provided in the example in FSP 157-3. As a result, the adoption of FSP 157-3 did not affect our process for determining the fair value of our investments and does not have a material effect on our financial position or results of operations.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative and Hedging Activities-an amendment of FASB Statement No. 133." SFAS 161 requires enhanced disclosures on derivative and hedging activities. These enhanced disclosures will discuss (a) how and why an entity uses derivative instruments,
(b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years beginning on or after November 15, 2008, with earlier adoption encouraged. The Company does not anticipate a material impact, if any, to the Company's financial condition, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51" ("SFAS 160"), which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary by clarifying that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a component of equity. It requires that changes in a parent's ownership interest while the parent retains its controlling interest be accounted for as equity transactions and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008 and shall be applied prospectively, except for the presentation and disclosure requirements which shall be applied retrospectively. We do not believe that this pronouncement will have an impact on our financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 141R (revised 2007), "Business Combinations" ("SFAS 141R") which supersedes SFAS No. 141 and establishes principles and requirements on how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date fair value, as well as the recognition and measurement of goodwill acquired in a business combination. SFAS No. 141R also requires certain disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Acquisition costs associated with the business combination will generally be expensed as incurred. SFAS No. 141R is effective prospectively to business combinations in fiscal years beginning on or after December 15, 2008. We do not believe that this pronouncement will have an impact on our financial condition or results of operations.

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