<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ___________
Commissions file number: 0-26906
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ASTA FUNDING, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 22-3388607
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
210 Sylvan Ave., Englewood Cliffs, New Jersey 07632
- --------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (201) 567-5648
Former name, former address and former fiscal year, if changed since last
report: N/A
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As Of December 31, 1998, the
registrant had 3,945,000 common shares outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
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<PAGE>
Asta Funding, Inc.
Form 10-QSB December 31, 1998
INDEX
Part I. Financial Information
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Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998
(Unaudited) and September 30, 1998
Consolidated Statements of Operations for the three-month
periods ended December 31, 1998 and December 31, 1997
(Unaudited)
Consolidated Statements of Cash Flows for the three-month
periods ended December 31, 1998 and December 31, 1997
(Unaudited)
Notes to consolidated financial statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
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Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I - FINANCIAL INFORMATION
Asta Funding, Inc. and Subsidiary
Consolidated Balance Sheets
December 31, September 30,
------------ -------------
1998 1998
---- ----
Unaudited
Assets
Cash $ 122,753 $ 163,123
Restricted cash and cash equivalents, net 95,584 62,210
Loans receivable, net 13,754,618 14,984,285
Accrued interest receivable 176,027 176,404
Servicing fees receivable 21,531 28,234
Income taxes receivable 527,463 527,463
Accounts acquired for liquidation 2,335,580 919,268
Servicing assets - 36,403
Residual interest - 13,970
Due from trustee 72,720 57,226
Furniture and equipment, net 134,967 150,015
Repossessed automobiles, net 630,671 365,787
Other assets 169,992 278,664
Deffered income taxes 332,021 366,300
------------ ------------
Total assets $ 18,373,927 $ 18,129,352
============ ============
Liabilities and Stockholders' Equity
Liabilities
Accounts payable and accrued expenses $ 275,724 $ 385,399
Advances under lines of credit 10,471,553 11,449,735
Due to affiliate 2,194,022 916,487
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Total liabilities 12,941,299 12,751,621
------------ ------------
Stockholders' Equity
Common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding
3,945,000 39,450 39,450
Additional paid-in capital 9,602,421 9,602,421
Accumulated deficit (4,209,243) (4,264,140)
------------ ------------
Total stockholders' equity 5,432,628 5,377,731
------------ ------------
Total liabilities and stockholders' equity $ 18,373,927 $ 18,129,352
============ ============
See accompanying notes to consolidated financial statements
<PAGE>
Asta Funding, Inc. and Subsidiary
Consolidated Statements of Operations
Unaudited
Three Months Ended
December 31,
----------------------
1998 1997
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Revenues:
Interest $ 1,184,727 $ 503,321
Servicing fees 43,047 280,374
Other income 17,135 -
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1,244,909 783,695
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Expenses:
General and administrative 626,178 610,150
Provision for credit losses 250,000 470,000
Interest 277,290 60,798
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1,153,468 1,140,948
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Income (loss) before income taxes 91,441 (357,253)
Income tax expense (benefit) 36,574 (142,225)
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Net income (loss) $ 54,867 $ (215,028)
=========== ==========
Net income (loss) per share $ 0.01 $ (0.05)
=========== ==========
Weighted average number of shares
outstanding 3,945,000 3,945,000
=========== ==========
See accompanying notes to consolidated financial statements
<PAGE>
Asta Funding, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Unaudited
Three Months Ended
December 31,
----------------------
1998 1997
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Cash flows from operating activities:
Net income (loss) $ 54,867 $ (215,028)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 82,320 472,679
Provision for losses 250,000 470,000
Deferred income taxes 34,279 (215,000)
Expenses advanced by affiliate 21,000 18,000
Changes in operating assets and liabilities:
Accrued interest receivable 377 (80,678)
Servicing fees receivable 6,703 1,746
Income taxes receivable -- 15,000
Repossessed automobiles -- (94,377)
Other assets 97,944 (68,889)
Due from trustee (4,736) (66,518)
Restricted cash (33,374) (229,522)
Accounts payable and accrued expenses (109,675) (130,519)
---------- ----------
Net cash provided by (used in)
operating activities 399,705 (123,106)
Cash flows from investing activities:
Loans purchased (1,316,947) (4,852,163)
Loan principal payments 1,942,743 137,620
Accounts acquired for liquidation (1,339,772) --
Capital expenditures (4,452) (35,576)
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Net cash (used in) investing
activities (718,428) (4,750,119)
Cash flows from financing activities:
Advances from affiliate 1,256,535 18,000
Increase in bank overdraft -- 211,711
Advances (payments) under lines of credit (978,182) 4,150,000
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Net cash provided by financing
activities 278,353 4,379,711
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(Decrease) increase in cash (40,370) (493,514)
Cash at the beginning of period 163,123 503,715
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Cash at end of period $ 122,753 $ 10,201
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period
Interest $ 258,473 $ 29,508
Income taxes $ -- $ --
See accompanying notes to consolidated financial statements
<PAGE>
Asta Funding, Inc.
Notes to Consolidated Financial Statements
Note 1: Basis of Presentation
Asta Funding, Inc. and its wholly-owned subsidiaries (collectably the "Company")
are engaged in the business of purchasing, selling and servicing retail
installment sales contracts ("Contracts") originated by automobile dealers
("Dealers") in the sale primarily of used automobiles and in the business of
purchasing in bulk, selling and servicing performing and non-performing consumer
receivables. The Company was formed on July 7, 1994. The Company's fiscal
year-end is September 30.
The consolidated balance sheet as of December 31, 1998, the consolidated
statements of operations for the three-month periods ended December 31, 1998 and
1997, and the consolidated statements of cash flows for the three-month periods
ended December 31, 1998 and 1997, have been prepared by the Company without an
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of the
Company at December 31, 1998 and September 30, 1998, the results of operations
for the three-month periods ended December 31, 1998 and 1997 and the cash flows
for the three-month periods ended December 31, 1998 and 1997 have been made. The
results of operations for the three-month periods ended December 31, 1998 and
1997 are not necessarily indicative of the operating results for any other
interim period or the full fiscal year.
Pursuant to the rules and regulations of the Securities and Exchange Commission,
certain information and footnote disclosures required under generally accepted
accounting principles have been condensed or omitted from the presented
financial statements. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended September 30,
1998.
Certain reclassifications were made to the 1997 financial statements to conform
to the 1998 presentation.
Note 2: Principles of Consolidation
The consolidated financial statements include the accounts of Asta Funding, Inc.
and its wholly-owned subsidiaries Asta Auto Receivables Company, E.R.
Receivables Corp., L.L.C., RAC Acceptance Co., L.L.C., and Palisades
Collections, L.L.C. All significant intercompany balances and transactions have
been eliminated in consolidation.
Note 3: Loans Receivable
The Contracts, which the Company purchases from Dealers, provide for finance
charges of between 14.95% and 28.95% per annum. Each Contract provides for full
amortization, equal monthly payments and permits prepayments by the borrower at
any time without penalty. The Company generally purchases Contracts at a
discount from the full amount financed under a Contract.
Note 4: Accounts Acquired for Liquidation
Accounts acquired for liquidation are stated at their net realizable value and
consist of consumer loans to individuals throughout the country.
Note 5: Interest Income
Interest income on loans is recognized using the interest method. Accrual of
interest income on loans receivable is suspended when a loan is contractually
delinquent more than 60 days.
Note 6: Servicing Fees
Servicing fees are reported as income when earned. Servicing costs are charged
to expense as incurred.
<PAGE>
Asta Funding, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
Asta Funding, Inc. and its wholly-owned subsidiaries (collectably the "Company")
are engaged in the business of purchasing, selling and servicing retail
installment sales contracts ("Contracts") originated by automobile dealers
("Dealers") in the sale primarily of used automobiles and in the business of
purchasing in bulk, selling and servicing performing and non-performing consumer
receivables. The Company was formed on July 7, 1994. The Company's fiscal
year-end is September 30.
The Company typically purchases Contracts between Dealers and purchasers of
automobiles ("Sub-Prime Borrowers") who may have limited credit histories, low
incomes or past credit problems and, therefore, are generally unable to obtain
credit from traditional sources of automobile financing such as commercial
banks, savings and loan associations or credit unions. Sub-Prime Borrowers
typically pay a higher rate of interest than do prime borrowers using
traditional financing sources.
During 1998, the Company formed three new wholly-owner subsidiaries. RAC
Acceptance Co., L.L.C. ("RAC") was formed to purchase military consumer
automobile Contracts. At December 31, 1998, RAC had ceased purchasing military
Contracts and is currently liquidating all receivables.
E.R. Receivables Corp., L.L.C. ("ER") was formed to purchase, sell and service
non-conforming consumer loans in bulk from financial institutions. In addition,
ER is a lender and profit participant in the financing of distressed consumer
receivables pursuant to a loan and security agreement.
Palisades Collections, L.L.C. was formed to act as sub-servicer pursuant to the
loan and security agreement that ER had entered into in the financing of
distressed consumer receivables.
The Company generates revenues, earnings and cash flow primarily through the
purchase and collection of principal, interest and other payments on automobile
Contracts and other consumer receivables.
This Form 10-QSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such statements include, but are not limited to, the
Company's opportunities to increase revenues through, among other things, the
purchase and sale of additional Contracts, and the anticipated need and
availability of financing. Forward-looking statements are inherently subject to
risks and uncertainties, many of which cannot be predicted with accuracy and
some of which might not even be anticipated. Future events and actual results,
financial and otherwise, could differ materially from those set forth in or
contemplated by the forward-looking statements herein. Important factors that
could contribute to such differences are: increases in unemployment or other
changes in domestic economic conditions which adversely affect the sales of new
and used automobiles and which may result in increased delinquencies,
foreclosures and losses on Contracts; adverse economic conditions in geographic
areas in which the Company's business is concentrated, mainly the Northeast and
Mid-Atlantic States; changes in interest rates; adverse changes in the market
for securitized receivables pools or a substantial lengthening of the Company's
warehousing each of which could restrict the Company's ability to obtain cash
for Contract origination and purchases; increases in the amounts required to be
set aside in spread accounts or to be expended for other forms of credit
enhancement to support future securitizations; increased competition; a
reduction in the number and amount of acceptable Contracts submitted to the
Company by its dealers; changes in government regulations effecting consumer
credit; and other risk factors identified in the Company's filings with the
Securities and Exchange Commission, including under the caption "Risk Factors"
in its most recent Registration Statement on Form SB-2. Subsequent, written and
oral forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified by the precautionary statements in this
paragraph and elsewhere in this Form 10-QSB.
<PAGE>
Asta Funding, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of operations
The three-month period ended December 31, 1998, compared to the three-month
period ended December 31, 1997
Revenues. During the three-month period ended December 31, 1998, revenues
increased $461,214 compared to the three-month period ended December 31, 1997.
Interest income increased $681,406 compared to the three months ended December
31, 1997, and represented 95% of total revenues for the three-month period ended
December 31, 1998. The increase in interest income is due to the increase in the
dollar amount of Contracts and accounts acquired for liquidation outstanding
during the three-month period ended December 31, 1998, as compared to the same
period in the prior year. During the three-month period ended December 31, 1998,
the Company purchased 186 Contracts from Dealers, compared to 576 in the
three-month period ended December 31, 1997. The Company earned servicing fees of
$43,047 for the three months ended December 31, 1998, as compared to $280,374
for the three-month period ended December 31, 1997. The decrease in servicing
fees is due to a decrease in the amount of Contracts serviced during the three
month period ended December 31, 1998, as compared to the same period in the
prior year.
Expenses. During the three-month period ended December 31, 1998, general and
administrative expense increased $16,028 compared to the three months ended
December 31, 1997 and represented 54% of total operating expenses.
Interest expense increased by $216,492 during the three-month period ended
December 31, 1998 compared to the same period in the prior year and represented
24% of total expenses for the three-month period ended December 31, 1998. The
increase is due to an increase in the outstanding borrowings by the Company
under the lines credit and borrowings from an affiliate.
During the three-month period ended December 31, 1998, the provision for credit
losses on Contracts purchased decreased by $220,000 compared to the three months
ended December 31, 1997 and represented 22% of total operating expenses. The
decrease in the provision reflects lower than expected quarterly volume as
compared to the three months ended December 31, 1997.
Liquidity and Capital Needs
The Company's primary sources of cash from operating activities include borrower
payments on Contracts and accounts acquired for liquidation and base servicing
fees it earns on Contracts sold. The Company's primary uses of cash include its
purchases of Contracts and consumer receivables and ordinary operating expenses
and the establishment and buildup of Spread Accounts (Defined Below).
Net cash provided by operating activities was $399,705 during the three months
ended December 31,1998 compared to net cash used of $123,106 during the three
months ended December 31, 1997. Cash used for purchasing Contracts was $1.32
million during the three months ended December 31, 1998 as compared to $4.85
million in the three months ended December 31, 1997. Cash used for purchasing
accounts acquired for liquidation was $1.85 million for the three months ended
December 31, 1998.
The Company's cash requirements have been and will continue to be significant.
Pursuant to the terms of a securitization agreement between Greenwich Capital
Markets, Inc. and the Company, the Company is required to make a significant
cash deposit into Spread Accounts, for the purpose of credit enhancement. The
Spread Accounts are pledged to support the related Asset Backed Securities
("ABS"), and are invested in high quality liquid securities. Excess cash flows
from securitized Contracts are deposited into the Spread Accounts until the
Spread Account balances reach a specific percent of the outstanding balance of
the related ABS.
In January 1998, the Company renewed its credit facility with BankAmerica (the
"Credit Facility") pursuant to which BankAmerica agreed to provide the Company
with a maximum of $20 million. The Credit Facility has a term of two years. The
outstanding principal amount of the indebtedness under the Credit Facility bears
interest at the rate of 1% per annum over BankAmerica's reference rate plus .25%
per annum on the average unused amount of the Credit Facility. Under the Credit
Facility, the Company may borrow up to 83% (the "advance rate") of its net
eligible automobile Contracts (depending upon the trade-in value of the
automobiles securing the Contracts), but in no event more than $20 million. The
advance rate is subject to
<PAGE>
Asta Funding, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
decreases based on certain loan performance criteria established by BankAmerica.
At December 31, 1998, the Company's advance rate was 77% of net eligible
installment Contracts.
In April 1998, RAC entered into demand credit facility with Sterling Financial
Services Company under which RAC can borrow at an advance rate of 65% of
eligible loans up to a maximum of $1 million. At Dcember 31, 1998, advances
under this facility agrregated $321,053. The advances bear interest at the prime
rate plus 4%.
The Company anticipates the funds available under its credit facilities, funds
made available by Asta Group, Incorporated, an affiliate of the Company, and
cash from operations will be sufficient to satisfy the Company's estimated cash
requirements for at least the next 12 months, If for any reason the Company's
available cash otherwise proves to be insufficient to fund operations (because
of future changes in the industry, general economic conditions, unanticipated
increases in expenses, or other factors), the Company may be required to seek
additional funding.
The Company does not anticipate any need for significant capital expenditures
concerning the expansion of its business for at least 12 months.
Year 2000
The Company recognizes the need to ensure that its operations and systems
(including information technology (IT) and non-IT systems) will not be adversely
impacted by year 2000 hardware and software issues. The Year 2000 problem is the
result of computer programs being written using two digits (rather than four) to
define the applicable years. Any of the Company's programs that have
time-sensitive software may recognize the date using "00" as the year 1900
rather than the year 2000, which could result in miscalculations or system
failures. The Year 2000 problem affects the Company's installed computer
systems, network elements, software applications and other business systems that
have time sensitive programs.
The Company is currently conducting a review of its IT and non-IT systems to
identify those systems which could be affected by the Year 2000 problem. The
Company is using both internal and external sources to identify, correct and
test its systems for Year 2000 compliance. Modifications to the Company's
systems as a result of the findings of such assessment are expected to be
completed and tested by April 30, 1999. The Company has contacted its Dealers to
verify that the systems the Dealers use are or will be Year 2000 compliant. If
the Company's Dealers or others with whom the Company does business experience
problems relating to the Year 2000 issue, the Company's business, financial
condition or results of operations could be materially adversely affected.
The Company estimates that the total cost of achieving Year 2000 readiness for
its internal systems is approximatesly $25,000. Based on its current estimates
and information currently available, the Company does not anticipate that the
costs associated with Year 2000 compliance isues will be material to the
Company's consolidated financial position or results of operations.
In the event that effors of the Company's Year 2000 project do not address all
potential systems problems, the Company is currently developing business
interruption contingency plans. Contingency planning for possible Year 2000
disruptions will continue to be defined, improved and implemented.
The Company believes that its Year 2000 project will allow it to be Year 2000
Compliant in a timely manner. There can be no assurances, however, that the
Company's information technology systems or those of a third party on which the
Company relies will be Year 2000 compliant by year 2000 or that the Company's
contingency plans will mitigate the effects of any noncompliance. An
interruption of the Company's ability to conduct its business due to a Year 2000
readiness problem could have a material adverse effect on the Company's
business, operations or financial condition. The foregoing discussion of the
implications of the Year 2000 problem for the Company contains numerous
forward-looking statements based on inherently uncertain information. There can
be no guarantee that the Company's Year 2000 goals or expense estimates will be
achieved, and actual results could differ.
<PAGE>
Asta Funding, Inc.
Form 10-QSB December 31, 1998
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
As of the date of this Filing, the Company was not involved in any
material litigation in which it is the defendant. The Company regularly
initiates legal proceedings as a plaintiff concerning its routine collection
activities.
Item 5. Other Information
On October 6, 1998, NASDAQ notified the Company that the Company's
common stock failed to maintain a closing bid price of greater than or equal to
$1.00. The Company had been provided a ninety day period from October 6, 1998 in
which to regain compliance with the minimum bid price requirement for a minimum
of ten consecutive trading days. During this period, the Company's common stock
did maintain the mimimum $1.00 bid price requirement and the Company has
received notification from NASDAQ confirming that the Company's common stock was
in compliance with the minimum bid price requirement.
Item 6. Exhibits and Reports on Form 8-K
a. The following exhibits are filing as part of this quarterly on form
10-QSB.
27.1 Financial Data Schedule
b. The registrant did not file any reports on Form 8-K during the
quarter ended December 31, 1998.
<PAGE>
Asta Funding, Inc.
Form 10-QSB December 31, 1998
Signatures
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In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ASTA FUNDING, INC.
(Registrant)
Date: February 10, 1999 By: /s/ Gary Stern
-----------------------
Gary Stern, President, Chief Executive Officer
(Principal Executive Officer)
Date: February 10, 1999 By: /s/ Mitchell Herman
----------------------
Mitchell Herman, Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 122,753
<SECURITIES> 0
<RECEIVABLES> 18,703,909
<ALLOWANCES> (2,613,709)
<INVENTORY> 630,671
<CURRENT-ASSETS> 0
<PP&E> 310,097
<DEPRECIATION> 175,130
<TOTAL-ASSETS> 18,373,927
<CURRENT-LIABILITIES> 12,941,299
<BONDS> 0
0
0
<COMMON> 39,450
<OTHER-SE> 9,602,421
<TOTAL-LIABILITY-AND-EQUITY> 18,373,927
<SALES> 1,244,909
<TOTAL-REVENUES> 1,244,909
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 626,178
<LOSS-PROVISION> 250,000
<INTEREST-EXPENSE> 277,290
<INCOME-PRETAX> 91,441
<INCOME-TAX> 36,574
<INCOME-CONTINUING> 54,867
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,867
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
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