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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-26906
ASTA FUNDING, INC.
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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Delaware 22-3388607
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
210 Sylvan Avenue, Englewood Cliffs, NJ 07632
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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Issuer's telephone number, including area code: (201) 567-5648
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-Bcontained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
The Registrant's revenues for the fiscal year ended September 30, 1999
were $11,603,000.
As of December 21, 1999, the aggregate market value of the Registrant's
Common Stock (based upon the closing sales price for the Common Stock as
reported by NASDAQ on such date) held by non-affiliates of the Registrant was
approximately $7,833,678. (Aggregate market value has been estimated solely for
the purpose of this report. For the purpose of this report it has been assumed
that all officers and directors are affiliates of the Registrant. The statements
made herein shall not be construed as an admission for the purposes of
determining the affiliate status of any person.) As of December 21, 1999, the
Registrant had 3,945,000 shares of Common Stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
Documents Incorporated by Reference:
The information called for by Part III of this Form 10-KSB is
incorporated by reference from the Company's Proxy Statement to be filed with
the Commission on or before January 27, 2000.
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Part I
Item 1. Description of Business.
General
Asta Funding, Inc. (the "Company" or "Asta") is a diversified consumer
finance company that is engaged in the business of purchasing, managing,
servicing and selling distressed consumer receivables. Distressed consumer
receivables are the unpaid debts of individuals that are owed to banks, finance
companies and other credit providers. Most of Company's receivables are
MasterCard and Visa credit card accounts which were charged-off by the issuing
banks for non-payment. During the fiscal year ended September 30, 1999, the
Company purchased approximately $1.4 billion of consumer receivables at a cost
of approximately $55.0 million and sold approximately $497.0 million of
receivables for a total sales price of approximately $16.3 million.
Prior to May 1, 1999, the Company's business was focused on purchasing,
servicing and selling retail automobile installment contracts ("Contracts")
originated by dealers ("Dealers") in the sale primarily of used automobiles.
Through its purchases, the Company provided indirect financing to borrowers
with limited credit histories, lower than average incomes or past credit
problems ("Sub-Prime Borrowers"). The Company ceased accepting new automobile
Contracts for funding on May 1, 1999 and anticipates liquidating all remaining
Contracts.
The Company is a Delaware corporation whose principal
executive offices are located at 210 Sylvan Avenue, Englewood Cliffs, New Jersey
07632. The Company was incorporated in New Jersey on July 7, 1994 and was
reincorporated in Delaware on October 12, 1995 as a result of a merger with a
Delaware corporation. Unless the context otherwise requires, the terms "Company"
or "Registrant" as used herein refer to Asta Funding, Inc. This Annual Report on
Form 10-KSB contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected in such forward-looking statements. Certain
factors which could materially affect such results and the future performance of
the Company are described below under "Risk Factors." See "Forward-Looking
Statements."
Business Strategy
The Company's primary objective is to increase revenues through the
expansion of its consumer receivables business, by among other things:
o Increasing receivable portfolio acquisitions;
o Increasing the Company's financing sources and improving the terms of
its financing sources;
o Enhancing the Company's computer systems to facilitate an increase in
collections; and
o The possible expansion into other consumer financing businesses.
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Consumer Receivable Business
In May 1999, the Company ceased accepting new automobile contracts and
changed its business focus to the purchasing, managing, selling and servicing
distressed consumer receivables.
Industry Overview
The distressed consumer receivable market is a growing industry, which
is driven by increasing levels of consumer debt. Credit card debt is the fastest
growing component of consumer debt. Despite generally good economic conditions
over the past few years, credit card charge-offs have increased as overall
consumer debt has increased.
Historically, originating institutions have sought to limit credit
losses by performing recovery efforts in-house, outsourcing recovery activities
to third-party collection agencies and selling their charged-off receivables for
immediate cash. From the originating institution's perspective, selling
receivables at the time of charge-off or shortly thereafter yields immediate
cash proceeds and represents a substantial reduction in the two to five year
period typically required for traditional recovery efforts.
Receivables are sold by originating institutions at substantial
discounts to the balances owed on the receivables, with the purchase price
varying depending on the amount that both the purchaser and seller anticipate
recovering and the costs associated with recovering these receivables. Sales of
receivables include published auction type sales, private brokered sales or
directly negotiated sales between the seller and the purchaser.
Receivable Purchase Program
The Company purchases distressed consumer receivables that have
typically been either charged-off by the credit grantors or not considered to be
prime receivables. These receivables include MasterCard and Visa accounts issued
by banks, and other consumer loans issued by credit grantors. The Company may
also purchase bulk receivable portfolios that include both distressed and
performing loans. During the fiscal year ended September 30, 1999, the Company
purchased approximately $1.4 billion of consumer receivables at a cost of
approximately $55.0 million and sold approximately $497.0 million of such
receivables for a total sales price of approximately $16.3 million.
Receivables are purchased by the Company at a discount from their
charged-off amount, typically the aggregate unpaid balance at the time of
charge-off. The Company purchases receivables directly from credit grantors
through privately negotiated direct sales and through auction type sales in
which sellers of receivables seek bids from several pre-qualified debt
purchasers. In order for the Company to consider a potential seller of
receivables, a variety of factors are considered. Sellers must demonstrate that
they have adequate internal controls to detect fraud and have the ability to
provide post sale support and to honor buy-back warranty requests. The Company
pursues new acquisitions on an ongoing basis by means of industry newsletters,
brokers who specialize in these assets and other professionals that the Company
has relationships with.
The Company's senior management locates the portfolios for purchase and
is responsible for performing due diligence, including on site visits of the
seller. The seller or broker usually sends either a sample listing or the actual
portfolio for sale to the Company on a diskette or other form of media. The
Company analyzes the portfolio to determine if it meets the Company's buying
criteria. If a portfolio meets the Company's buying criteria, a purchase price
is determined and the seller or broker is notified. After a purchase is
completed, senior management monitors the portfolios performance and uses this
information in determining future buying criteria and pricing.
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Receivable Servicing
The Company's objective is to maximize the amount that it recovers on
receivables that are acquired. Unlike third party collection agencies that are
given specific time periods to recover on receivables, the Company has
significantly more flexibility in establishing payment programs.
The Company has four main-servicing department's which consist of the
following: collection/skiptrace, legal, customer service and accounting
departments.
The collection/skiptrace department is responsible for making contact
with the obligors and collecting the receivables. This department uses a
friendly, customer service approach to collect on receivables. Through the use
of the Company's collection software and telephone system, each collector is
responsible for contacting customers and explaining the benefits of paying the
Company and working with the customers to develop acceptable means to satisfy
their obligations. The Company also uses a series of automated collection
letters, late payment reminders, and settlement offers that are sent out at
specific intervals or at the request of a collection department employee. When
the collection department cannot contact the customer by either telephone or
mail, the account is referred to the skiptrace department.
If the collection department determines that the customer has the
ability to resolve its obligation but the Company's normal collection activities
have not resulted in any resolution of the customer's obligations, the account
is referred to the legal department. The legal department determines the
criteria for instituting legal proceedings, determines jurisdiction, places
cases for suit, obtains judgments, institutes wage garnishments and assists both
in-house and outside counsel in legal case management. The legal department also
refers accounts to the skip trace department in order to obtain a current phone
number, address or to locate assets or the identity of the customer's employer.
The Company employs one full-time in-house attorney, one paralegal and a
dedicated support staff to process numerous court cases each year. The legal
department has the ability to internally prepare and file collection proceedings
in New York and New Jersey. This department also coordinates legal collection
activity nationwide using a network of collection attorneys. At September 30,
1999, the Company had approximately 65,000 accounts that were in legal status.
The skiptrace department is responsible for locating and contacting
customers who could not be contacted by either the collection or legal
departments. The skip trace employees use a variety of public and private third
party databases to locate customers. Once an account is located and contact is
made by a skiptracer, the account is then referred back to the collection or
legal department for follow-up. The skiptrace department is also responsible for
finding current employers and assets of customers when this information is
deemed necessary. At September 30, 1999, the Company was directly performing
collection activity on approximately 18,000 accounts.
In addition to directly performing collection activity, the Company
utilizes the services of third party collection agencies to perform collection
activities on accounts that were with such agency at the time the Company
purchased the account. At September 30, 1999, in addition to the 18,000 accounts
that the Company is servicing, there were approximately 64,000 accounts that are
being serviced by third party collection agencies.
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The customer service department is responsible for handling incoming
calls from customers and collection agencies who are responsible for collection
of accounts. The customer service department coordinates customer inquiries on
accounts and will also assist the collection agencies in the collection process.
The customer service department is also responsible for handling buy-back and
media requests from companies who have purchased accounts from the Company. They
work with the buyers during the transition period and post sale process and
handle any issues that may arise once an account has been sold.
The accounting department is responsible for making daily deposits of
customer payments, posting these payments to the customers account, mailing of
monthly statements and providing senior management with daily and monthly
receivable activity and performance reports. Employees also assist collection
department employees in handling customer disputes with regard to payment and
balance information. The accounting department will also assist the customer
service department in the handling of buy-back requests from companies who have
purchased receivables. In addition, the accounting department monitors the
performance on accounts that are being serviced by third party collection
agencies.
Portfolio Sales
The Company will occasionally sell to other debt buyers certain
receivables that it decides not to service directly or have a third party
collection agency service. There are many factors that contribute to the
decision of which receivables to sell and which to service. During the fiscal
year ended September 30, 1999, the Company sold approximately $497 million of
receivables for a total purchase price of approximately $16 million.
In June 1999, the Company formed a wholly owned subsidiary Asta
Funding.Com that developed a web-site for selling distressed consumer
receivables to qualified customers over the Internet. The Company's program
allows pre-qualified potential debt purchasers the opportunity to select, review
and purchase in a more cost efficient manner receivables that meet their
individual buying criteria.
At September 30, 1999, the Company had approximately 32,000 accounts
that were being serviced by third party collection agencies that meet the
Company's sale criteria and were being marketed for sale.
Automobile Financing Business
The Company ceased accepting new automobile Contracts for funding on
May 1, 1999 and intends to liquidate all remaining Contracts. The following is a
description of the Company's former business.
The Company typically purchased Contracts from new-car franchise
Dealers who sold both new and used automobiles as well as independent used car
Dealers. The Company entered into Dealer Agreements and solicited Contracts from
Dealers primarily through the efforts of sales representatives and the Company's
staff. The Company currently services all of the Contracts it has purchased for
its own account as well as those Contracts it purchased and subsequently sold.
Servicing consists of the collection of principal, interest and other payments
on the Contracts, providing related accounting and reporting services and, when
necessary, the repossession and sale of collateral upon an event of default.
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Dealer Contract Purchase Program
As of September 30, 1999, the Company was a party to Dealer Agreements
with more than 750 Dealers, all of which are located in the states of New York,
New Jersey, Connecticut, Delaware, Maryland, Pennsylvania, Virginia and Maine.
Approximately 70% of these Dealers are independent used car dealers and the
remainder are franchised new car dealers selling both new and used automobiles.
For the period October 1, 1998 to April 30, 1999, approximately 99% of the
Contracts purchased by the Company consisted of financing for used cars and the
remaining approximately 1% for new cars.
Dealers generated applications from retail automobile buyers who
indicated an interest in obtaining financing from a Dealer to purchase an
automobile, light truck or passenger van. Typically, a Dealer would submit the
buyer's application to more than one financing source for review. The Company
believes that the Dealer's decision to finance the automobile purchase with the
Company or other financing source was based primarily upon an analysis of the
discounted purchase price offered for the Contract, the promptness of the
financing source in approving or disapproving loan applications, the ability of
the financing source to promptly consummate the purchase and any purchase
conditions.
Based upon the Company's underwriting criteria and its review of the
information contained in a credit bureau report ordered by the Company, the
application, the proposed transaction structure and a verification of the value
of the automobile securing the Contract, the Company may have approved the
application as submitted, approved the application upon modified terms or
rejected the application. The Company's credit analysts then documented their
decision and notified the Dealers by facsimile transmission and/or telephone.
The Company did not purchase all of the Contracts approved for purchase because
Dealers typically offered to sell Contracts to more than one finance source and
applicants often decided not to purchase a vehicle from Dealers to whom they
have submitted a credit application. The Company purchased Contracts directly
from Dealers and did not make loans directly to purchasers of automobiles.
The Company purchased Contracts from Dealers at a discount. In
addition, the Company charged an acquisition fee for each Contract purchased.
The Company believes that the level of discounts and fees was a significant
factor in the Dealer's decision to submit a Contract to the Company for
purchase.
The Company attempted to control Dealer misrepresentation by carefully
screening the Dealers and the Contracts it purchased. The Company's efforts
included establishing and maintaining sound professional business relationships
with Dealers and obtaining certain representations and warranties regarding the
nature and enforceability of the Dealer Agreement and the corresponding
Contracts. In addition, if a Dealer breached its representations or warranties,
pursuant to the Dealer Agreement, the Company has the right to require the
Dealer to repurchase any Contract. There can be no assurance, however, that any
Dealer will have the financial resources to satisfy its repurchase obligations
to the Company.
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Contract Purchase Criteria
To be eligible for purchase by the Company, a Contract must have been
originated by a Dealer that has entered into a Dealer Agreement to sell
Contracts to the Company. The Contracts must have been secured by a first
priority security interest in the purchased vehicle and must have met the
Company's underwriting criteria. In addition, each Contract requires the
borrower to maintain physical damage insurance covering the financed vehicle and
naming the Company as a loss payee. Although each borrower is required to
maintain insurance, losses may occur upon theft or physical damage of any
financed vehicle if the borrower fails to maintain insurance as required and is
unable to pay for repairs to or replacement of the vehicle or is otherwise
unable to payoff the Contract in full.
All of the Contracts purchased by the Company are fully amortizing and
provide for equal payments over the term of the Contract. The Contracts may be
prepaid at any time without premium or penalty.
In the event a borrower elects to prepay a Contract in full, the payoff
amount is calculated by deducting the unearned interest (as determined by the
actuarial or the simple interest method or such other interest amortization
method as is submitted by applicable state law) from the Contract balance.
Each Contract purchased by the Company prohibits the sale or transfer
of the financed vehicle without the secured party's consent and provides for the
acceleration of the maturity of the Contract upon a sale or transfer without
such consent. In most circumstances, the Company will not consent to a sale or
transfer of a financed vehicle unless the Contract is prepaid in full.
The Company seeked to control loss exposure on Contracts by: (i)
requiring that the applicant pay a substantial portion of the purchase price
(usually 15% to 20%) for the vehicle with funds not borrowed from the Company or
Dealer; (ii) verifying the credibility of the applicant and determining whether
the applicant meets the Company's underwriting criteria, particularly whether
the applicant has sufficient disposable income to meet such applicant's existing
obligations and the obligations resulting from the proposed transaction; (iii)
limiting the credit the Company is willing to extend based upon its assessment
of the applicant's ability to meet payment obligations and the value of the
underlying collateral; (iv) requiring physical damage insurance, under which the
Company is a loss payee, to be maintained on all vehicles at all times by the
obligor to protect the Company's financial interest; (v) purchasing insurance to
cover the risk of the borrower's failure to maintain insurance and certain other
risks; and (vi) acquiring a first priority security interest in the financed
vehicle. There can be no assurances, however, that these methods have afforded
adequate protection against risk of loss exposure.
The degree of exposure in any transaction is a function of: (a) the
creditworthiness of the applicant, (b) the extent of credit granted compared to
the value of the underlying collateral, (c) the possibility of physical damage
to, or the loss of the collateral, and (d) the potential for any legal
impediment to the collection of the obligation or the repossession of the
collateral. The Company generally determined the value of collateral based upon
national recognized pricing services.
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The Company had implemented specific procedures to control borrower
misrepresentation at the point of origination. The Company required each Dealer
submitting a potential Contract to provide certain information to the Company,
including a completed signed loan application which listed the applicant's
income, credit and employment history as well as other personal information. The
Company verified the employment and certain other information provided by the
borrower by contacting the related references noted on the borrower's
application. The Company also evaluated the applicants credit history as
provided by at least one independent credit bureau. The credit report typically
contained information on matters such as historical payment experience, credit
history with merchants and lenders, installment debt payments, defaults and
bankruptcies, if any. The Company also may have required verification of certain
other information provided by the applicant or the Dealer prior to making its
credit decision. This verification process in many instances required submission
of supporting documentation and is performed solely by Company personnel. The
Company evaluated applicants by considering the relationship of the applicant's
monthly income to monthly expenses, including expenses relating to the Contract
and ownership of the financed vehicle. There can be no assurances, however, that
these procedures have afforded adequate protection against borrower
misrepresentation.
The Company believes that its objective underwriting criteria
did enable it to evaluate effectively the creditworthiness of Sub-Prime
Borrowers. These criteria included standards for price, term, installment
payment and interest rate, mileage, age and type of vehicle, amount of the loan
in relation to the value of the vehicle and the amount of the down payment, the
borrower's income level, job and residence stability, credit history and debt
serviceability and other factors.
If a Dealer sold a Contract to the Company, the requisite
financing documents were generated by the Dealer on a standardized form of
Contract supplied by the Company. The Dealer and the borrower signed the
Contract, the Dealer assigned the Contract to the Company and the Dealer
forwarded the signed Contract to the Company along with other items, including
the vehicle title information indicating the Company's security interest. The
Company thereupon forwarded payment to the Dealer for the Contract upon
completion of all loan-funding procedures.
Securitization of Contracts
In May 1996, the Company entered into an agreement with Greenwich
Capital Markets, Inc. ("Greenwich Capital") that provided the Company with a
committed forty-eight month securitization Contract program totaling $200
million. As of September 30, 1999, the Company had completed two securitizations
aggregating approximately $44 million in Contracts pursuant to this agreement.
In May 1999, the Company ceased accepting new Contracts for funding and decided
to liquidate all remaining Contracts; therefore the Company will not securitize
any more Contracts under this program. In addition, negative market conditions
in this industry would have prevented the Company from completing any further
securitizations under this program.
For the years prior to September 30, 1998, the Company purchased
Contracts with the intention of reselling them to institutional investors as
asset backed securities ("ABS"). The structure of these securitizations with
Greenwich Capital (and the general structure the Company intends to utilize with
future securitizations) included the following steps. First, the Company sells a
portfolio of Contracts to a wholly owned subsidiary, which had been established
for the limited purpose of buying and reselling the Company's Contracts. The
wholly-owned subsidiary then sells the portfolio of Contracts to a grantor trust
and the grantor trust in turn issues interest-bearing ABS in an amount equal to
the aggregate principal balance of the Contracts. Institutional investors
purchase these ABS, the proceeds of which are used by the grantor trust to
purchase the Contracts from the subsidiary. The wholly owned subsidiary uses the
proceeds to purchase the Contracts from the Company. The Company also provides a
credit enhancement for the benefit of the trust investors through the use of an
initial cash deposits to a specified trust account ("Spread Account") and agrees
to deposit certain residual interest cash flows which may be received in the
future. Purchasers of the ABS received a particular coupon rate (the
"Pass-Through Rate") established at the time of the sale.
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The Company receives periodic base servicing fees for its duties
relating to the accounting for and collection of the Contracts. In addition, the
Company is entitled to certain residual interest cash flows that represent
collections on the Contracts in excess of the amounts required to pay the
investors principal and interest, the base servicing fees and certain other fees
such as trustee and custodial fees. The company sells the Contracts in the
portfolio at face value and without recourse except that certain of the
representations and warranties made by the Dealer to the Company in the Dealer
Agreement were similarly made by the Company to the ABS investors.
At the end of the month, the aggregate cash collections relating to the
portfolio of Contracts are allocated first to the base servicing fees and
certain fees such as trustee and custodial fees for the period, then to the ABS
certificate holder in an amount equal to the interest accrued at the
Pass-Through Rate on the portfolio plus the amount by which the portfolio
balance decreased (due to payments, payoffs or charge offs) during the period.
If the amount of cash required for the above allocations exceeds the amount
collected during the monthly period, the shortfall is drawn from the Spread
Accounts. If the cash collected during the period exceeds the amount necessary
for the above allocations, and there is no shortfall in the related Spread
Accounts from prior periods, the excess is returned to the Company. The excess
cash flows are considered by the Company to be cash receipts from the residual
interest, part of which the Company recognizes as a gain on sale bases on an
estimate of the discounted present value of the excess cash flows.
Because the annual percentage rate on the Contracts received by the
Company is relatively high in comparison to the Pass-Through Rate paid to
investors; the net present value described above can be significant. In
calculating the net gain on the sales described above, the Company must estimate
the future rates of prepayments, delinquencies, defaults and default loss
severity as they impact the amount and timing of the cash flows in the net
present value calculation. The cash flows received by the Company are then
discounted at an interest rate that the Company believes a third-party purchaser
would require as a rate of return. Expected losses are discounted using a rate
equivalent to the risk free rate for securities with duration similar to that
estimated for the underlying Contracts.
In connection with the sale of the Contracts, the Company is required
to make certain representations and warranties, which generally duplicate the
substance of the representations and warranties made by Dealers in connection
with the Company's purchase of the Contracts. If the Company breaches any of its
representations or warranties to a purchaser of the Contracts, the Company will
be obligated to repurchase the Contract from such purchaser at a price equal to
such purchaser's purchase price less the related cash securitization reserve and
any payments received by such purchaser of the Contract. In most cases, the
Company would then be entitled under the terms of its Dealer Agreement to
require the selling Dealer to repurchase the Contracts at a price equal to the
Company's purchase price, less any payments made by the borrower. Subject to any
recourse against Dealers, the Company will bear the risk of loss on repossession
and resale of vehicles under Contracts repurchased by it.
For the years ended September 30, 1999 and 1998, the Company did not
complete any sales of Contracts under its securitization agreement.
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Terms of Servicing Agreement
The Company currently services all Contracts it has purchased,
including those it has subsequently sold.
The Company currently has a servicing agreement with a trustee ( the
"Servicing Agreement") relating to a securitization with Greenwich Capital
pursuant to which the Company is obligated to service all Contracts sold to the
trust in accordance with the Company's standard procedures. The Servicing
Agreement provides that the Company will bear all costs and expenses incurred in
connection with the management, administration and collection of the Contracts
serviced. The Servicing Agreement also provides that the Company will take all
actions necessary or reasonably requested by the investor to maintain perfection
and priority of the investors' or the trust's security interest in the financed
vehicles.
Pursuant to the Servicing Agreement, the Company mails to borrowers
monthly invoices directing them to mail payments on the Contracts to a
lock-box-account. The Company engages an independent lock-box-processing agent
to retrieve and process payments received in the lock-box account. This results
in a daily deposit to the trust's bank account of the entire amount of each
day's lock-box receipts. In addition, the agent prepares a listing of all
payments received and sends a photo copy of each payment along with the envelope
in which the payment was received to the Company for posting to the borrowers
account on a daily basis. Pursuant to the Servicing Agreement, the Company is
required to deliver to the trustee monthly information of all transaction
activity with respect to the Contracts.
The Company is entitled under the Servicing Agreement to receive a base
monthly servicing fee of 3.0% per annum computed as a percentage of the
declining outstanding principal balance of each Contract in the portfolio that
is not in default as of the beginning of the month. Each month, after payment of
the Company's base monthly servicing fee and certain other fees, the investors
receive the paid principal reduction of the Contracts in their portfolio and
interest at the Pass-Through Rate. If, in any month, collections on the
Contracts are insufficient to pay such amounts and any principal reduction due
to charge-off, the shortfall is satisfied from the cash securitization reserve
established in connection with the sale of the portfolio. (If the cash
securitization reserve is not sufficient to satisfy a shortfall, then the trust
may suffer a loss to the extent that the shortfall exceeds the cash
securitization reserve.)
If collections on the Contracts exceeds such amounts, the excess is
utilized, first, to build up or replenish the cash securitization reserve to the
extent required and the balance, if any, constitutes residual interest cash
flows, which are distributed to the Company. If, in any month, the cash
securitization reserve balances are in excess of that required under the
Servicing Agreement, the Company is entitled to receive such excess.
Pursuant to the Servicing Agreement, the Company is required to
charge-off the balance of any Contract when the Contract becomes 120 days
delinquent or, in the case of repossessions, the month that the proceeds from
liquidation of the financed vehicle are received by the Company. In the case of
repossession, the amount of the charge-off is the difference between the
outstanding principal balance on the Contract and the repossession sale
proceeds. In the event collections on the Contracts are not sufficient to pay
the investors the entire principal balance of any Contracts charged-off during
the month, the securitization reserve established in connection with the sale of
the Contracts is reduced by the unpaid principal amount of such Contracts. Such
amount would then have to be restored to the cash securitization reserve from
future collections on the Contracts remaining in the portfolio before the
Company would again be entitled to residual interest cash flows. In addition,
the Company would not be entitled to receive any further base monthly servicing
fees with respect to the defaulted Contracts. Subject to any recourse against
the Company in the event of a breach of the Company's representations and
warranties with respect to any Contracts, the ABS investors bear the risk of all
charge-offs on the Contracts in excess of the cash securitization reserve.
However, the Company would experience a reduction of residual interest cash
flows in the event of greater than anticipated charge-offs or prepayments on
Contracts sold and serviced by the Company which could result in losses on the
residual interest and investments in Spread Accounts.
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The Servicing Agreement is terminable by the ABS investors in the event
of certain defaults by the Company and under certain other circumstances.
Servicing of Contracts
The Company's servicing activities have been tailored to the
Sub-Prime Borrower market. Such activities consist of: (a) collection of
payments; (b) accounting for and posting all payments received; (c) responding
to borrower inquiries; (d) taking necessary action to maintain the security
interest in the financed vehicle; (e) investigating delinquencies and
communicating with the borrower to obtain timely payments; (f) monitoring the
Contract and its related collateral; and (g) when necessary, repossessing and
disposing of the financed vehicle.
The Company believes that its ability to monitor performance
and collect payments owed from Sub-Prime Borrowers with limited financial
resources primarily is a function of its collection approach and support
systems. The Company believes that if payment problems are identified early and
the Company's collection staff works closely with borrowers to address these
concerns, it is possible to correct a portion of these problems before they
deteriorate further. To this end, the Company utilizes pro-active collection
procedures, which include making early and frequent telephone contact with
delinquent borrowers and educating borrowers as to the importance of maintaining
good credit.
The Company issues to each borrower a monthly invoice
approximately two weeks before the due date of a payment. If a payment is not
received on or before its due date, the Company typically contacts the borrower
by telephone within five days after the due date. The Company's personnel
attempt to stay in regular contact with the borrower until the delinquency is
cured. If the borrower does not cure the delinquency within four to six weeks
after the due date, the Company typically causes its licensed repossession
agents to repossess the vehicle immediately. All such agents used by the Company
are licensed and bonded against claims relating to improper repossessions.
When a vehicle is repossessed, the Company gives the borrower
written notice in accordance with applicable laws and the opportunity to redeem
the repossessed vehicle upon payment to the Company of all past due obligations
on the Contract, including the costs of repossession. If the borrower does not
redeem the vehicle, the Company usually sells the vehicle at a public sale.
Based upon the experience of the Company's management in the
consumer finance industry, as well as the results of the Company's collection
efforts during its limited operating history, the Company believes that its
collection policies and procedures will be effective to minimize the incidence
of borrower defaults and loss on default. However, there can be no assurance
that such policies and procedures will afford adequate protection against the
risks of borrower defaults.
-11-
<PAGE>
The tables below document the delinquency, repossession and net credit
loss experience of all Contracts originated and/or sold by the Company as of
September 30, 1999 and 1998. All amounts and percentages are based on the
principal amount to be paid on each Contract. The information in the tables
represents all Contracts purchased by the Company including Contracts
subsequently sold by the Company, which it continues to service. Management
periodically evaluates the portfolio primarily by analyzing the trends in past
due loans and repossessed vehicles and the portfolios historical performance.
The percentage increase in delinquencies is due to a greater decrease in the
number and amount of the gross servicing portfolio as compared to the decrease
in the delinquencies.
Delinquency Experience (1)
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
------------------ ------------------
Number Number
Of Loans Amount Of Loans Amount
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Gross Servicing Portfolio 2444 $13,859,326 3671 $26,363,424
Period of delinquency (2) 267 1,625,830 273 2,047,328
31-60 days
61-90 days 58 344,527 76 494,481
91- + days 30 129,529 38 256,233
----------- ----------- ----------- -----------
Total delinquencies 355 2,099,886 387 2,798,042
Amount in repossession (3) 60 455,098 111 1,029,398
Total delinquencies and amount in 415 2,554,984 498 3,827,440
repossession
Delinquencies as a percent of Gross 14.53% 15.15% 10.54% 10.61%
Servicing Portfolio
Total delinquencies and amount in 16.98% 18.44% 13.57% 14.52%
Repossession as a percent of Gross
Servicing Portfolio
</TABLE>
(1) All amounts and percentages are based on the remaining unpaid principal
balance on each Contract. The information in the table represents the principal
amount of all Contracts purchased by the Company, including Contracts
subsequently sold by the Company, which it continues to service.
(2) The Company considers a Contract delinquent when an obligor fails to make at
least 95% of a contractually due payment by the due date. The period of
delinquency is based on the number of days payments are contractually past due.
Amounts shown do not include Contracts, which are less than 31 days delinquent.
(3) Amount in repossession represents vehicles, which have been repossessed but
not yet liquidated.
-12-
<PAGE>
<TABLE>
<CAPTION>
Net Charge-Off Experience (1)
Year Ended Year Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Average Servicing Portfolio Outstanding $20,882,996 $29,655,049
Net charge-offs as a percent of Average 14.90% 15.61%
Servicing Portfolio
</TABLE>
(1) Net charge-off includes the remaining principal balance, after the
application of net proceeds from liquidation of the vehicle. Post-liquidation
amounts received on previously charged-off Contracts are applied to the period
in which the related Contract was originally charged-off.
Marketing
The Company has established relationships with brokers who market
consumer receivable portfolios from banks, finance companies and other credit
providers. In addition, the Company subscribes to national publications that
list consumer receivable portfolios for sale. The Company will also directly
contact a bank, finance company or other credit provider to solicit consumer
receivables for sale.
Competition
The Company's business of purchasing distressed consumer receivables is
highly competitive and fragmented, and it expects that competition from new and
existing companies will increase. The Company competes with many other
purchasers of distressed consumer receivables including third party collection
companies and other financial services companies. Many of these competitors are
larger and more established and may have substantially greater financial,
technological, personnel and other resources than the Company. Moreover, the
Company's future profitability will be directly related to the availability and
cost of its capital in relation to availability and cost of capital to its
competitors.
The Company's existing and potential competitors also include larger,
more established companies that have access or may have access to capital
markets, including asset-backed securities, which may be unavailable to the
Company. The Company believes that no individual competitor or group of
competitors has a dominant presence in the market. The Company's strategy is
designed to capitalize on the market's lack of a company with a dominant
presence. The Company believes that it can obtain sufficient receivables for
purchase at attractive prices by applying reasonable buying criteria and making
timely purchases.
There can be no assurances that the Company will be able to compete
successfully against current or future competitors or that competition will not
have material adverse effect on the Company's business, financial condition or
results of operations.
-13-
<PAGE>
Management Information Systems
Management believes that a high degree of automation is
necessary to enable the Company to grow and successfully compete with other
finance companies. Accordingly, during the year ended September 30, 1999, the
Company upgraded its computer hardware to support the Company's servicing,
collecting and accounting processes.
Due to its desire to increase productivity through automation,
the Company intends to periodically review its systems for possible upgrades and
enhancements.
Regulation
Several federal and state consumer protection laws including the
Federal Fair Debt Collection Practices Act ("FDCPA") and comparable state
statutes establish specific guidelines and procedures which debt collectors
must follow to communicate with consumer debtors, including the time, place and
manner of such communications. It is the Company's policy to comply with the
provisions of the FDCPA and comparable state statutes in all of its collection
activities, although it may not be specifically subject to such statutes. If
these laws apply to some or all of the Company's collection activities, the
Company's failure to comply with such laws could have a materially adverse
effect on the Company. The relationship of a customer and a credit card issuer
is extensively regulated by federal and state consumer protection and related
laws and regulations. Because many of its receivables were originated through
credit card transactions, certain of the Company's operations are affected by
such laws and regulations. Significant laws include the Federal
Truth-In-Lending Act, the Fair Credit Billing Act, the Equal Opportunity Act,
the Fair Credit Reporting Act and the Electronic Funds Transfer Act (and the
Federal Reserve Board's regulations which relate to these Acts), as well as
comparable statues in those states in which customers reside or in which the
credit grantors are located. State laws may also limit the interest rate and
the fees that a credit card issuer may impose on its customers. Among other
things, the laws and regulations applicable to credit card issuers impose
disclosure requirements when a credit card account is advertised, when it is
applied for and when it is opened, at the end of monthly billing cycles and at
year-end. Federal law requires credit card issuers to disclose to consumers the
interest rates; fees, grace periods and balance calculations methods associated
with their credit card accounts, among other things. In addition, customers are
entitled under current laws to have payments and credits applied to their
credit card accounts promptly, to receive prescribed notices and to require
billing errors to be resolved promptly. In addition, some laws prohibit certain
discriminatory practices in connection with the extension of credit. Failure by
the credit grantors to have compiled with applicable statues, rules and
regulations could create claims and rights offset by the customers that would
reduce or eliminate their obligations under their receivables, and this could
have a materially adverse effect on the Company. Pursuant to agreements under
which the Company purchases receivables, the Company is normally indemnified
against losses caused by the failure of the credit grantor to have complied
with applicable statutes, rules and regulations relating to the receivables
before they are sold to the Company.
Certain laws, including the laws described above, may limit the
Company's ability to collect amounts owing with respect to the receivables
regardless of any act or omission on the part of the Company. For example, under
the federal Fair Credit Billing Act, a credit card issuer is subject to all
claims (other than tort claims) and defense arising out of certain transactions
in which a credit card is used if the obligor has made a good faith attempt to
obtain satisfactory resolution of a disagreement or problem relative to the
transaction and, except in cases where there is a specified relationship between
the person honoring the card and the credit card issuer, the amount of the
initial transaction exceeds $50.00 and the place where the initial transaction
occurred was in the same state as the customer's billing address or within 100
miles of that address. As a purchaser of defaulted consumer receivables, the
Company may purchase receivables subject to legitimate defenses on the part of
the customer. The statutes further provide that, in certain cases, customers
cannot be held liable for, or their liability is limited with respect to,
charges to the credit card account that were a result of an unauthorized use of
the credit card. No assurances can be given that certain of the receivables were
not established as a result of unauthorized use of a credit card, and,
accordingly, the amount of such receivables could not be collected by the
Company. Pursuant to some agreements under which the Company purchased
receivables, the Company is indemnified against certain losses with respect to
such receivables regardless of any act or omission on the part of the Company or
the credit grantor.
-14-
<PAGE>
Additional consumer protection laws may be enacted that would impose
requirements on the enforcement of and collection on consumer credit card or
installment accounts. Any new laws, rules or regulations that may be adopted as
well as existing consumer protection laws, may adversely affect the ability of
the Company to collect the receivables. In addition, the failure of the Company
to comply with such requirements could adversely affect the Company's ability to
enforce the receivables.
Several federal and state consumer protection laws, including the
Federal Truth- In-Lending Act, the Federal Equal Credit Opportunity Act, the
FDCPA and the Federal Trade Commission Act, regulate the extension of credit in
consumer credit transactions. These laws mandate certain disclosures with
respect to finance charges on Contracts and impose certain other restrictions on
Dealers. Certain state laws impose limitations on the amount of finance charges
that may be charged by Dealers on credit sales. The so-called Lemon Laws enacted
by the federal government and certain states provide certain rights to
purchasers with respect to motor vehicles that fail to satisfy express
warranties. The application of Lemon Laws or violation of such other federal and
state laws may give rise to a claim or defense of a borrower against a Dealer
and its assignees, including the Company and purchasers of Contracts from the
Company. The Dealer Agreement contains representations by the Dealer that the
sale of the motor vehicle covered by the Contract was affected in accordance
with all applicable federal, state and local laws covering the sale. Although a
Dealer would be obligated to repurchase Contracts that involve a breach of such
warranty, there can be no assurance that the Dealer will have the financial
resources to satisfy its repurchase obligations to the Company. Certain of these
laws also regulate the Company's Contract servicing activities, including its
methods of collection.
Although the Company believes that it is currently
substantially in compliance with applicable statutes and regulations, there can
be no assurance that the Company will be able to maintain such compliance. The
failure to comply with such statutes and regulations could have a material
adverse effect upon the Company.
The Company is not licensed to make loans directly to borrowers.
Certain of the Company's licenses and licenses that it may be required to obtain
in the future are subject to periodic renewal provisions and provisions
governing changes in control, or acquisitions of certain percentages of stock,
of the Company.
The Dealer Agreement contains an undertaking by the Dealer
that at the time of sale of a Contract to the Company, (i) the Dealer will
submit an application for state registration of the financed vehicle, naming the
Company as a secured party with respect to the vehicle, and (ii) that all
necessary steps will be taken to obtain a perfected first priority security
interest in each financed vehicle in favor of the Company under the laws of the
state in which the financed vehicle is registered. If a Dealer or the Company,
because of clerical error or otherwise, has failed to timely take such action or
maintain such interest with respect to a financed vehicle, neither the Company
nor any subsequent purchaser of the related Contract would have a perfected
security interest in the financed vehicle and its security interest may be
subordinate to the interest of, among others, later purchasers of the financed
vehicle, holders of perfected security interests and a trustee in bankruptcy of
the borrower. The security interest of the Company may also be subordinate to
the interests of such third parties in the case of fraud or forgery by the
borrower, administrative error by state recording officials or in certain other
circumstances.
-15-
<PAGE>
The Company may take action to enforce the security interest
in financed vehicles with respect to any related Contracts in default by
repossession and resale of the financed vehicles. The Uniform Commercial Code
("UCC") and other state laws regulate repossession sales by requiring that the
secured party provide the borrower with reasonable notice of the date, time and
place of any public sale of the collateral, the date after which any private
sale of the collateral may be held and of the borrower's right to redeem the
financed vehicle prior to any such sale and providing that any such sale be
conducted in a commercially reasonable manner.
In the event of a repossession and resale of a financed vehicle, after
payment of outstanding liens for storage, repairs and unpaid taxes, the secured
party would be entitled to be paid the full outstanding balance of the Contract
out of the sale proceeds before payments are made to the holders of junior
security interests in the financed vehicle, to unsecured creditors of the
borrower, or, thereafter, to the borrower. Under the UCC and other laws
applicable in most states, a creditor is entitled to obtain a deficiency
judgment from a borrower for any deficiency on repossession and resale of the
motor vehicle securing the unpaid balance of such borrower's motor vehicle loan.
However, some states impose prohibitions or limitations on deficiency judgments.
If a deficiency judgment were granted, the judgment would be a personal judgment
against the borrower for the shortfall, and a defaulting borrower may often have
insufficient capital or few sources of income available following repossession.
Therefore, in many cases, it may not be useful to seek a deficiency judgment
against a borrower or, if one is obtained, it may be settled at a significant
discount.
Risk Factors
The Company is dependent on external sources of financing to fund its operations
The Company depends on external sources of financing to fund its
operations, including its credit facilities, notes payable and loans made by
affiliates of the Company. The failure to obtain financing and capital as needed
would limit the Company's ability to operate its business or achieve its growth
plans. The Company's financing sources impose certain restrictive covenants,
including financial covenants. Failure to satisfy any one of these covenants
would preclude the Company from further borrowing's from the Company's existing
sources and could prevent the Company from securing alternative sources of
financing necessary to operate its business. In addition, all of the Company's
borrowings are secured by the Company's assets and in the event of any default
provisions; the Company's assets would be available to the creditor to satisfy
the Company's obligations.
-16-
<PAGE>
The Company may not be able to purchase receivables at favorable prices and is
subject to competition for such receivables
The Company's success depends upon the continued availability of
receivables that meet its requirements. The availability of receivable
portfolios at favorable prices depends on a number of factors outside of the
Company's control, including the continuation of the current growth trends in
consumer debt and sales of receivable portfolios by originating institutions, as
well as competitive factors affecting potential purchasers and sellers of
receivables. In this regard, the Company competes with other purchasers of
defaulted consumer receivables and with third-party collection agencies, and is
affected by financial services companies that manage their own defaulted
consumer receivables.
Some of the Company's competitors have greater capital, personnel and
other resources than the Company. The possible entry of new competitors,
including competitors that historically have focused on the acquisition of
different asset types, and the expected increase in competition from current
market participants may reduce the Company's access to receivables. In addition
aggressive pricing by competitors could raise the price of receivable portfolios
above levels that the Company is willing to pay.
The Company may not be able to recover sufficient amounts on its receivables to
fund its operations
The Company acquires, services and sells consumer receivables that the
borrowers have failed to pay and the sellers have charged-off. The originating
institutions generally have made numerous attempts to collect on these
obligations, often using both its in-house collection staff and third party
collection agencies. These receivables are difficult to collect and the Company
may not recover its acquisition cost of the receivables and the costs associated
with servicing the receivables.
The loss of the Company's key personnel may adversely affect the Company's
operations
The loss of the services of one or more of the Company's executive
officers or key employees could disrupt its operations. The Company has
employment agreements with Gary Stern, the Company's President and CEO and
Mitchell Herman, Company's Chief Financial Officer. The agreements contain
noncompetition provisions that survive termination of employment in some
circumstances. However, these agreements do not assure the continued services of
these officers and we cannot assure that the noncompetition provisions will be
enforceable. Competition for qualified executive officers is intense. In
addition, if the Company is unable to attract, retain and motivate other highly
skilled employees, its business and financial condition could be materially
adversely affected.
The Company uses estimates in its accounting and the Company would have to
reduce its earnings if actual results are less than estimated
In accounting for some receivable portfolios, the Company makes
estimates and assumptions that could affect their reported amounts. If
recoveries on portfolios in future periods are less than what was estimated in
the current year, the Company would recognize a charge to earnings in future
periods which would reduce the Company's earnings during such periods.
-17-
<PAGE>
Defaults under the Company's Contracts would affect the Company's results of
operations
The Company's results of operations, financial condition and liquidity
depend, to a material extent, on the performance of Contracts purchased and
serviced by the Company. A portion of the loans purchased by the Company may
default. The Company bears the full risk of losses resulting from payment
defaults during such period. In the event of a payment default, the collateral
value of the financed vehicle may not cover the outstanding loan balance and
costs of recovery. The Company maintains an allowance for losses on loans held
by the Company, which reflects management's estimates of anticipated losses for
such loans. If the allowance is inadequate, then the Company would recognize as
an expense the losses in excess of such allowance and results of operations
could be adversely affected. The allowance for credit losses is increased by the
provision for losses and for recoveries on Contracts that were previously
charged-off and deceased for Contacts that are charged-off.
The Company's recoveries on consumer receivables may decrease in a weak
economic cycle
The Company cannot assure that its recoveries on consumer receivables
acquired for liquidation would not worsen in a week economic cycle. If the
Company's actual recoveries are lower than projected when the portfolio was
purchased, the Company's financial position, liquidity and results of operations
could be adversely affected.
Delinquencies, defaults, repossessions and losses generally increase
during periods of economic recession and could cause a decline in values of
automobiles securing outstanding loans, thereby weakening collateral coverage
and increasing the possibility of a loss in the event of default.
Significant increases in the inventory of used automobiles during
periods of economic recession may also depress the prices at which repossessed
automobiles may be sold. Because the Company focused on Sub-Prime borrowers, the
actual rates of delinquencies, defaults, repossessions and losses on such loans
could be higher than those experienced in the general automobile finance
industry and could be more significantly affected by a general economic
downturn. In addition, during an economic slowdown or recession, the Company's
servicing costs may increase. While the Company believes that the underwriting
criteria and collection methods it employs enable it to manage the higher risk
inherent in loans made to Sub-Prime borrowers, no assurance can be given that
such criteria or methods will provide adequate protection against such risks.
Any sustained period of increased delinquencies, defaults, repossessions or
losses or increased servicing costs could adversely affect the Company's
financial position, liquidity and results of operations.
The Company could suffer Year 2000 computer problems which could disrupt its
operations
The Company could be affected by failures of its business systems, as
well as those of its suppliers, vendors and third-party collection agencies, due
to the potential Year 2000 problem. Any failure could result in a disruption of
the Company's collection efforts, which would impair its operations. The Company
recently upgraded its computer, telecommunications, software applications, and
business systems, and believes that these systems are Year 2000 compliant.
However, the Company cannot assure you that Year 2000 problems will not arise
with its systems.
In addition, Year 2000 failures on the part of the Company's suppliers,
vendors or third-party collection agencies could occur, which could also disrupt
the Company's operations. Potential consequences of the Company's business
systems, or the business systems of the third parties with whom the Company
conducts business, not being Year 2000 compliant include failure to operate due
to a lack of power, disruption or errors in credit information and receivable
recovery efforts, and delays in receiving inventory and supplies.
-18-
<PAGE>
Government regulations may limit the Company's ability to recover and enforce
receivables
Federal and state laws may limit the Company's ability to recover and
enforce receivables regardless of any act or omission on the Company's part.
Some laws and regulations applicable to credit card issuers may preclude the
Company from collecting on receivables it purchases where the card issuer failed
to comply with applicable law in generating or servicing the receivables the
Company acquired. Laws relating to debt collections also directly apply to the
Company's business. The Company's failure to comply with any laws or regulations
applicable to it could limit its ability to recover on receivables, which could
reduce its earnings. Additional consumer protection laws may be enacted that
would impose requirements on the enforcement of and collection on consumer
credit cards or installment accounts. Any new laws, rules or regulations may
adversely affect the Company's ability to collect the receivables.
Employees
As of September 30, 1999, the Company had 46 full-time
employees. The Company is not a party to any collective bargaining agreement.
Item 2. Property.
The Company's executive and administrative offices are located
in Englewood Cliffs, New Jersey, where the Company subleases approximately 8,300
square feet of general office space for $8,677 per month from Asta Group,
Incorporated, an affiliate of the Company. The sublease expires on July 31,
2000. The Company believes that the sublease is on terms that are as favorable
to the Company as those terms, which could be obtained from an unaffiliated
lessor of the same premises.
Item 3. Legal Proceedings.
As of the date of this Form 10-KSB, the Company was not
involved in any material litigation in which it was a defendant. The Company
regularly initiates legal proceedings as a plaintiff in connection with its
routine collection activities.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
-19-
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Commencing November 13, 1995 the Company's common stock par
value $.01 per share ("Common Stock") has been quoted on the NASDAQ Small Cap
Market under the symbol "ASFI." On December 13, 1998 there were approximately 34
holders of record of the Common Stock. High and low bid prices of the Common
Stock since October 1, 1997 as reported by NASDAQ are set fourth below (such
quotations reflect inter-dealer prices without retail markup, markdown, or
commission, and may not necessarily represent actual transactions):
High Low
----- -----
October 1, 1997 to December 31, 1997 $1.18 $0.56
January 1, 1998 to March 31, 1998 0.97 0.50
April 1, 1998 to June 30, 1998 1.13 0.72
July 1, 1998 to September 30, 1998 1.02 0.50
October 1, 1998 to December 31, 1998 1.06 0.38
January 1, 1999 to March 31, 1999 1.44 0.31
April 1, 1999 to June 30, 1999 2.56 1.25
July 1, 1999 to September 30, 1999 3.50 1.25
The Company has never paid a cash dividend on its Common Stock
and does not expect to pay a cash dividend in the near future. Under the credit
facility with BankAmerica the Company is prohibited from paying dividends on its
Common Stock without the consent of BankAmerica.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In the following discussions, most percentages and dollar amounts have
been rounded to aid presentation. As a result, all such figures are
approximations.
Results of Operations
Year Ended September 30, 1999 Compared to the Year Ended September 30, 1998
Revenues. During the year ended September 30, 1999 revenues
increased $6.6 million or 132.0% to $11.6 million from $5.0 million for the year
ended September 30, 1998. Interest income during the year ended September 30,
1999 increased $6.4 million or 130.3% to $11.4 million from $4.9 million for the
year ended September 30, 1998, and represented 97.9% of total revenues for the
year ended September 30, 1999. The increase in interest income is due to the
increase of interest income earned on the purchases of consumer receivables
acquired for liquidation for the year ended September 30, 1999, as compared to
the prior year and partially offset by the reduction in automobile loans
receivable. During the year ended September 30, 1999, the Company paid $55.4
million in its acquisition of accounts acquired for liquidation, compared to
$3.4 million in the year ended September 30, 1998. In addition, the Company
purchased $2.6 million in Contracts during the year ended September 30, 1999 as
compared to $13.1 million during the year ended September 30, 1998. Servicing
fee income on Contracts sold during the year ended September 30, 1999 increased
$190,000 or 380.0% to $240,000 from $50,000 for the year ended September 30,
1998. The increase in servicing fee income, which is net of the servicing
assets, is due to the Company writing down its servicing assets to the estimated
fair value during the year ended September 30, 1998.
-20-
<PAGE>
Expenses. During the year ended September 30, 1999, general
and administrative expenses decreased $142,000 or 4.39 % to $3.1 million from
$3.2 million for the year ended September 30, 1998 and represented 36.8% of
total expenses. The decrease in general and administrative expenses is due to a
decrease in expenses associated with purchasing and servicing Contracts,
partially offset by increased expenses associated with acquiring and servicing
consumer receivables for liquidation.
Interest expense increased by $2.9 million or 375.6% during
the year ended September 30, 1999 to $3.6 million from $764,000 for the year
ended September 30, 1998 and represented 43.2% of total expenses. The increase
is due to an increase in borrowings associated with the purchase of consumer
receivables acquired for liquidation during the year ended September 30, 1999
compared to the year ended September 30, 1998.
During the year ended September 30, 1999, the provision for
credit losses decreased by $2.9 million or 63.0% to $1.7 million from $4.6
million for the year ended September 30, 1998. The decrease is due to the
decrease in the amount of Contracts purchased during the year ended September
30, 1999 as compared to the year ended September 30, 1998.
Year Ended September 30, 1998 Compared to the Year Ended September 30, 1997
Revenues. During the year ended September 30, 1998, revenues
decreased $1.2 million or 21.1% to $4.5 million from $5.7 million for the year
ended September 30, 1997. Interest income increased $1.9 million or 76.0% from
$2.5 million to $4.4 million for the year ended September 30, 1997, and
represented 98.9% of total revenues for the year ended September 30, 1998. The
increase in interest income is due to the interest income earned on the consumer
receivables acquired for liquidation and an increase in dollar amount of
Contracts outstanding during the year ended September 30, 1998, compared to the
same period in the prior year. During the year ended September 30, 1998, the
Company purchased $18.0 million in Contracts from Dealers, compared to $23.0
million in the year ended September 30, 1997. The decrease in the number of
Contracts purchased from Dealers resulted from the Company's recent refocusing
of its strategic business objectives by its expansion into the consumer
receivables liquidation sector. Servicing fee income on Contracts sold decreased
$633,000 from $683,000 to $50,000 for the year ended September 30, 1997. The
decrease in servicing fee income is due to the decrease in the dollar amount of
Contracts serviced by the Company during the year ended September 30, 1998 and
worse than expected performance on the Contracts serviced.
Expenses. During the year ended September 30, 1998, general
and administrative expenses decreased $352,000 or 9.78% from $3.6 million to
$3.2 million for the year ended September 30, 1997 and represented 37.7% of
total expenses. The decrease in general and administrative expenses is due to a
decrease in expenses associated with purchasing Contracts.
Interest expense increased by $333,000 or 77.3% during the
year ended September 30, 1998 from $431,000 to $764,000 for the year ended
September 30, 1997, and represented 8.9% of total expenses. The increase is due
to an increase in borrowings under the Company's lines of credit with
BankAmerica and Sterling Financial Services Company and interest accrued and/or
paid on loans from an affiliate.
-21-
<PAGE>
During the year ended September 30, 1998, the provision for
credit losses increased by $2.2 million or 91.7% from $2.4 million to $4.6
million for the year ended September 30, 1997. The increase reflects higher than
expected losses on loans previously sold and serviced by the Company.
Seasonality
Management of the Company believes that the Company's
operations may, to some extent, be affected by high delinquency rates by
borrowers on Contracts and lower recoveries on consumer receivables acquired for
liquidation during or shortly following certain holiday periods.
Liquidity and Capital Needs
The Company's primary sources of cash include borrower
payments on consumer receivables acquired for liquidation and Contracts. The
Company's primary uses of cash include its purchases of consumer receivables
acquired for liquidation. As of September 30, 1999, the Company's cash and cash
equivalents increased to $780,000 from $163,000 at September 30, 1998. The
increase was due to an increase in cash collected during the last few days in
September 1999 that was not yet available to pay down debt compared to cash
collected in September 1998.
Net cash provided by operating activities was $6.3 million
during the year ended September 30, 1999, compared to $1.8 million during the
year ended September 30, 1998. Cash used for purchasing accounts acquired
liquidation was $55.4 million during the year ended September 30, 1999, compared
to $3.4 million in the year ended September 30, 1998. Cash used for purchasing
Contacts was $2.6 million during the year ended September 30, 1999, compared to
$13.2 million in the year ended September 30, 1998.
The Company's cash requirements have been and will continue to
be significant. The Company depends on external financing for purchasing
consumer receivables. At September 30, 1999, the Company did not have any open
lines of credit to purchase consumer receivables but was in negotiations with
several banks to arrange financing for future purchases.
In March 1999, the Company borrowed funds from three financial
institutions aggregating $52.0 million and $1.0 million from a Company
controlled by the principal stockholders of the Company. Each financial
institution's note is collateralized by specific portfolios of accounts acquired
for liquidation. During the year ended September 30, 1999, the Company repaid
approximately $41.0 million of the $52.0 million borrowed.
A bank provided $10.0 million in exchange for a note payable with
interest at the prime rate plus 4.5% per annum and the first million dollars
collected on the portfolio after repayment of the note and interest. As of
September 30, 1999, $779,000 was outstanding.
A factoring company loaned the Company $5.0 million in exchange for a
note payable with interest at 20% per annum. As of September 30, 1999, the
outstanding balance due was $1.9 million.
An investment banking firm provided $37.0 million in exchange for a
note payable with interest at the LIBOR rate plus 2% plus $1.5 million to be
collected on a different portfolio (payable after the $5.0 million note payable
to the factoring company is repaid) and sharing in subsequent collections, net
of expenses of the portfolio collateralizing this obligation. As of September
30, 1999, the outstanding balance of the note was $8.0 million.
-22-
<PAGE>
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 decreases based on certain
loan performance criteria established by BankAmerica. At September 30, 1999, the
Company's advance rate was 75% of net eligible installment Contracts. On June
30, 1999, at the Company's request, BankAmerica reduced the maximum amount the
of the Credit Facility from $20 million to $8 million. At September 30, 1999,
advances under this facility aggregated $5.4 million. The Company's ability to
continue to borrow under the Credit Facility will be dependent upon its
compliance with the terms thereof, including compliance with certain financial
covenants such as the maintenance of a minimum ratio of earnings before interest
and taxes to interest expense, a minimum tangible net worth and a maximum ratio
of total liabilities to tangible net worth. In addition, events of default under
the Credit Facility will occur if, among other things, if the existing
stockholders of the Company no longer own at least 51% of the outstanding Common
Stock, or if there occurs a material adverse change in the Company's financial
condition. Pursuant to the Credit Facility, BankAmerica's consent will be
required for the Company to make bulk purchases or sales of Contracts.
The BankAmerica Facility is secured by a first priority security
interest in the Company's Contracts and a pledge by the Company's principal
stockholders of 2,252,000 shares of the Company's common stock.
In April 1998, the Company entered into demand credit facility a bank
under which the Company can borrow at an advance rate of 65% of eligible loans
up to a maximum of $1.0 million. At September 30, 1999, advances under this
facility aggregated $16,000. The advances bear interest at the prime rate plus
4%.
The Company anticipates the funds available under its Credit
Facilities and notes payable, funds made available by an Affiliate, and cash
from operations will be sufficient to satisfy the Company's estimated cash
requirements for at least the next 12 months.
The Company does not anticipate any need for significant
capital expenditures in connection with 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.
-23-
<PAGE>
The Company has conducted a review of its IT and non-IT systems to
identify those systems which could be affected by the Year 2000 problem. The
Company used 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 were completed and tested by April 30,
1999. The Company has contacted its Dealers and major vendors to verify that the
systems they use are or will be Year 2000 compliant. Most of the Company's major
Dealers and vendors have advised the Company that they are already Year 2000
compliant or expect to be Year 2000 in the near future. 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.
As of September 30, 1999, the Company has spent approximately $20,000
on the Year 2000 compliance and does not anticipate any additional costs
associated with Year 2000 compliance.
In the event that efforts of the Company's Year 2000 project did not
address all potential systems problems, the Company is currently developing
business interruption contingency plans, which include ensuring that all staff
are available or scheduled to work prior to, during and immediately after
December 31, 1999. 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.
Forward-Looking Statements
This Form 10-K contains forward-looking statements within the meaning
of the "safe harbor" provisions under section 21E of the Securities and Exchange
Act of 1934 and the Private Securities Litigation Act of 1995. The Company uses
forward-looking statements in its description of its plans and objectives for
future operations and assumptions underlying these plans and objectives.
Forward-looking terminology includes the words "may", "expects", "believes",
"anticipates", "intends", "forecasts", "projects", or similar terms, variations
of such terms or the negative of such terms. These forward-looking statements
are based on management's current expectations and are subject to factors and
uncertainties which could cause actual results to differ materially from those
described in such forward-looking statements. The Company expressly disclaims
any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statements contained in this Form 10-K to reflect any change
in its expectations or any changes in events, conditions or circumstances on
which any forward-looking statement is based. Factors which could cause such
results to differ materially from those described in the forward-looking
statements include those set forth under "Risk Factors" and elsewhere in, or
incorporated by reference into this Form 10-K. These factors include the
following: the Company is dependent on external sources of financing to fund its
operations; the Company may not be able to purchase receivables at favorable
prices and is subject to competition for such receivables; the Company may not
be able to recover sufficient amounts on its receivables to fund its operations;
government regulations may limit the Company's ability to recover and enforce
receivables and other risks.
-24-
<PAGE>
Item 7. Financial Statements.
The Financial Statements of the Company, the Notes thereto and
the Report of Independent Auditors thereon required by this item appear in this
report on the pages indicated in the following index:
<TABLE>
<CAPTION>
<S> <C>
Index to Audited Financial Statements: Page
-------------------------------------- ----
Independent Auditors' Report F-1
Consolidated Balance Sheets - September 30, 1999 and 1998 F-2
Consolidated Statements of Operations - Years ended
September 30, 1999 and 1998 F-3
Consolidated Statements of Shareholders' Equity - Years ended
September 30, 1999 and 1998 F-4
Consolidated Statements of Cash Flows - Years ended
September 30, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
25
<PAGE>
ASTA FUNDING, INC.
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 and 1998
<PAGE>
ASTA FUNDING, INC.
Contents
Page
----
Consolidated Financial Statements
Independent auditors' report F-1
Balance sheets as of September 30, 1999 and 1998 F-2
Statements of operations for the years ended
September 30, 1999 and 1998 F-3
Statements of changes in stockholders' equity for the
years ended September 30, 1999 and 1998 F-4
Statements of cash flows for the years ended
September 30, 1999 and 1998 F-5
Notes to financial statements F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Asta Funding, Inc.
Englewood Cliffs, New Jersey
We have audited the accompanying consolidated balance sheets of Asta Funding,
Inc. as of September 30, 1999 and 1998, and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements enumerated above present
fairly, in all material respects, the financial position of Asta Funding, Inc.
as of September 30, 1999 and 1998, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
As discussed in Note A to the financial statements, the Company revised its
method of computing the value of the residual interests related to loans sold
and, accordingly, restated its 1998 financial statements
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
October 29, 1999
<PAGE>
ASTA FUNDING, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
-----------------------
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 780,000 $ 163,000
Restricted cash and cash equivalents (Note G) 49,000 62,000
Consumer receivables acquired for liquidation (Notes B[4] and E) 16,500,000 919,000
Auto loans receivable, (less allowance for credit losses of $1,122,000 in
1999 and $1,209,000 in 1998 (Note D) 8,344,000 14,985,000
Servicing assets (Notes B[11] and H) 36,000
Residual interest (Notes B[12] and H) 14,000
Furniture and equipment (net of accumulated depreciation of $246,000
in 1999 and $156,000 in 1998) (Notes B[5] and F) 174,000 150,000
Repossessed automobiles held for sale (net of allowance for losses of
$200,000 in 1999 and $200,000 in 1998) 460,000 366,000
Deferred income taxes (Note J) 610,000 366,000
Income taxes receivable 527,000
Other assets 643,000 541,000
--------------- --------------
$ 27,560,000 $ 18,129,000
=============== ==============
LIABILITIES
Advances under lines of credit (Note I) $ 5,422,000 $ 11,450,000
Notes payable (Note I) 10,636,000
Accounts payable and accrued expenses 256,000 385,000
Income taxes payable 663,000
Due to affiliate (Note K) 2,473,000 917,000
--------------- --------------
Total liabilities 19,450,000 12,752,000
--------------- --------------
Commitments (Notes K and L)
STOCKHOLDERS' EQUITY (Note M)
Common stock, $.01 par value, authorized 10,000,000 shares, issued
and outstanding 3,945,000 shares 39,000 39,000
Additional paid-in capital 9,602,000 9,602,000
Accumulated deficit (1,531,000) (4,264,000)
--------------- --------------
Total stockholders' equity 8,110,000 5,377,000
--------------- --------------
$ 27,560,000 $ 18,129,000
=============== ==============
</TABLE>
See notes to financial statements F-2
<PAGE>
ASTA FUNDING, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended
September 30,
-----------------------------
1999 1998
------------- -------------
(as restated)
(Note A)
<S> <C> <C>
Interest income $ 11,363,000 $ 4,933,000
Servicing fee income 240,000 50,000
------------- -------------
11,603,000 4,983,000
------------- -------------
General and administrative expenses (Note L) 3,094,000 3,236,000
Provision for credit losses 1,688,000 4,567,000
Interest expense (Note K) 3,634,000 764,000
------------- -------------
8,416,000 8,567,000
------------- -------------
Income (loss) before provision (benefit) for income taxes 3,187,000 (3,584,000)
Provision (benefit) for income taxes (Note J) 454,000 (1,044,000)
------------ -------------
Net income (loss) $ 2,733,000 $ (2,540,000)
============= =============
Basic and diluted net income (loss) per share $.69 $(.64)
==== ======
</TABLE>
See notes to financial statements F-3
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Stock Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Income
----------- --------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, as originally reported
September 30, 1997 3,945,000 $ 39,000 $ 9,602,000 $(1,236,000) $82,000
Restatement (Note A) (488,000)
----------- --------- ------------ ------------- ----------------
Balance, as restated
September 30, 1997 3,945,000 39,000 9,602,000 (1,724,000) 82,000
Change in unrealized gain on residual
interest, net of income tax effect (82,000)
Net loss (2,540,000)
----------- --------- ------------ ------------ ----------------
Balance, September 30, 1998 3,945,000 39,000 9,602,000 (4,264,000) 0
Exercise of options 25,000
Cancellation of common stock (Note
M[2]) (25,000)
Net income 2,733,000
----------- --------- ------------ ------------- ----------------
Balance, September 30, 1999 3,945,000 $ 39,000 $ 9,602,000 $ (1,531,000) $ 0
=========== ========= ============ ============== ================
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Comprehensive
Income Total
---------------- ------------
<S> <C> <C>
Balance, as originally reported
September 30, 1997 $8,487,000
Restatement (Note A) (488,000)
-------------
Balance, as restated
September 30, 1997 7,999,000
Change in unrealized gain on residual
interest, net of income tax effect $(82,000) (82,000)
Net loss (2,540,000) (2,540,000)
--------------- ------------
Balance, September 30, 1998 $(2,622,000) 5,377,000
===============
Exercise of options
Cancellation of common stock (Note
M[2])
Net income $2,733,000 2,733,000
--------------- -----------
Balance, September 30, 1999 $2,733,000 $8,110,000
=============== ==========
</TABLE>
See notes to financial statements F-4
<PAGE>
ASTA FUNDING, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1999 1998
-------------- --------------
(as restated)
(Note A)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,733,000 $ (2,540,000)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 132,000 635,000
Amortization of loan discount 1,000,000
Provisions for losses 1,688,000 4,567,000
Deferred income taxes (244,000) (586,000)
Expenses advanced by affiliate 58,000 73,000
Writedown of residual interest 250,000
Changes in:
Restricted cash and cash equivalents 13,000 (81,000)
Repossessed automobiles held for sale (94,000) (243,000)
Income taxes receivable 527,000 (109,000)
Other assets (102,000) (117,000)
Income taxes payable 663,000
Accounts payable and accrued expenses (129,000) (33,000)
-------------- --------------
Net cash provided by operating activities 6,245,000 1,816,000
-------------- --------------
Cash flows from investing activities:
Auto loans purchased (2,603,000) (13,155,000)
Auto loan principal payments 7,806,000 4,666,000
Purchase of consumer receivables acquired for liquidation (55,444,000) (3,407,000)
Principal payments received from sale or collection of consumer receivables
acquired for liquidation 39,613,000 2,488,000
Purchase of securitization certificates (4,600,000)
Principal payments received on residual interest 14,000 63,000
Capital expenditures (120,000) (72,000)
-------------- --------------
Net cash used in investing activities (10,734,000) (14,017,000)
------------- --------------
Cash flows from financing activities:
Advances from affiliate 1,498,000 410,000
Advances (repayments) under lines of credit (6,044,000) 11,450,000
Proceeds from notes payable 52,000,000
Repayments of notes payable (42,348,000)
-------------- --------------
Net cash provided by financing activities 5,106,000 11,860,000
-------------- --------------
Net increase (decrease) in cash 617,000 (341,000)
Cash at beginning of year 163,000 504,000
-------------- --------------
Cash at end of year $ 780,000 $ 163,000
============== ==============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 3,679,000 $ 674,000
Income taxes 1,000 1,000
</TABLE>
See notes to financial statements F-5
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1999 and 1998
NOTE A - RESTATEMENT
During the year ended September 30, 1997, Asta Funding, Inc. (the "Company")
securitized and sold loans with limited recourse. At the time of the sale, the
Company recognized a residual interest using the cash-in method of computing its
estimated value. Subsequent guidance on implementation of the standard on
accounting for transfers of financial assets issued by the staff of the
Financial Accounting Standards Board in December 1998 provided that the
estimated value of residual interests should be determined using the cash-out
method, which results in a lower fair value for the residual interest (and a
resultant lower gain on sale) and increased amounts of interest income
subsequent to the sale. The staff of the Securities and Exchange Commission
advised the Company that such guidance be reflected retroactively. Accordingly,
prior year financial statements have been adjusted resulting in the accumulated
deficit as of September 30, 1997 and the loss for the year ended September 30,
1997being increased and the net loss for the year ended September 30, 1998 being
decreased from amounts previously reported by $488,000 ($.13 per share).
NOTE B - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
[1] The Company:
Prior to May 1999, the Company was primarily engaged in the business of
purchasing and servicing retail installment sales contracts originated by
automobile dealers financing the purchase primarily of used automobiles
by sub-prime borrowers. The loans were generally purchased from
automobile dealers in the northeastern and mid-atlantic states. The
Company ceased accepting new automobile contracts for funding on May 1,
1999 and will liquidate all remaining contracts. Currently, the Company's
primary business is purchasing and liquidating nonperforming consumer
loans.
[2] Principles of consolidation:
The consolidated financial statements include the accounts of Asta
Funding, Inc. and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
[3] Cash and cash equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents.
The Company maintains cash balances in various financial institutions.
Management periodically evaluates the creditworthiness of such
institutions.
[4] Income recognition:
The Company recognizes income on nonperforming loan portfolios, which are
acquired for liquidation, using either the interest method or cost
recovery method. Upon acquisition of a portfolio of loans, the Company's
management estimates the future anticipated cash flows and determines the
allocation of payments based upon this estimate. If future cash flows
cannot be estimated, the cost recovery method is used. Under the cost
recovery method, no income is recognized until the Company has fully
collected the cost of the portfolio.
Interest income from sub-prime automobile 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. The
accrual is resumed when the loan becomes contractually current, and past
due interest income is recognized at that time. In addition, a detailed
review of loans will cause earlier suspension if collection is doubtful.
F-6
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1999 and 1998
NOTE B - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[5] Furniture and equipment:
Furniture and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets
(5 to 7 years).
[6] Credit losses:
Provisions for credit losses are charged to operations in amounts
sufficient to maintain the allowance at a level considered adequate to
cover the losses of principal in the existing portfolio. The Company's
charge-off policy is based on an account-by-account review of loans
receivable. Loans receivable are charged-off when management deems them
to be uncollectible.
[7] Loan origination fees and costs:
Direct loan origination fees collected and costs incurred are deferred
and amortized over the average lives of the loans using the interest
method. Unamortized amounts are recognized in operations at the time that
loans are sold or paid in full.
[8] Repossessed automobiles held for sale:
Upon foreclosure of the loan, the Company records repossessed automobiles
at the lower of the loan balance or estimated fair value of the
automobile.
After foreclosure, valuations are periodically performed by management
and the carrying value of the automobiles are adjusted to the lower of
cost recorded upon repossession or estimated fair value.
[9] Income taxes:
Deferred federal and state taxes arise from net operating losses and
temporary differences resulting primarily from the provision for credit
losses and funds deposited in accounts for loans sold being reported for
financial accounting and tax purposes in different periods.
[10] Net income (loss) per share:
Basic per share data is determined by dividing net income (loss) by the
weighted average shares outstanding during the period. Diluted per share
data is computed by dividing net income by the weighted average shares
outstanding, assuming all dilutive potential common shares were issued.
With respect to the assumed proceeds from the exercise of dilutive
options, the treasury stock method is calculated using average market
price for the period. For 1998, all potentially dilutive securities have
been excluded from the calculation since they would be antidilutive.
F-7
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1999 and 1998
NOTE B - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the computation of basic and diluted per share data
for the years ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
------------------------------------------ -----------------------------------------------
Weighted Weighted
Average Per Share Average Per Share
Net Income Shares Amount Net Loss Shares Amount
---------- ---------- --------- ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic $2,733,000 3,946,000 $.69 $(2,540,000) 3,945,000 $(.64)
---------- ===== ----------- ------------- ======
Effect of dilutive stock
options 26,000
---------- ----------
Diluted $2,733,000 3,972,000 $0.69 $(2,540,000) 3,945,000 $(.64)
========== ========== ===== ============ ============= ======
</TABLE>
[11] Servicing assets:
Servicing assets arise from the sale of loans. Servicing assets represent
the estimated present value of the differential between the contractual
servicing fee and the Company's normal servicing cost. These capitalized
amounts are amortized over the estimated average life of the loans in
each pool sold. The Company reviews the carrying amount of each pool for
possible impairment. If the estimated present value of the future
servicing income is less than the carrying amount, the Company recognizes
an impairment loss and reduces future amortization accordingly.
[12] Residual interest:
The Company, upon sale of loans, recognizes a residual interest. The
residual interest represents the estimated discounted cash flow of the
differential of the total interest to be earned on the loans sold and the
sum of the interest to be paid to the investors and the contractual
servicing fee.
[13] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent 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.
[14] Comprehensive income:
During the year ended September 30, 1999, the Company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes standards for reporting comprehensive income and its
components in financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from
non-owner sources.
F-8
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1999 and 1998
NOTE B - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[15] Stock-based compensation:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") allows companies to either expense
the estimated fair value of stock options or to continue to follow the
intrinsic value method set forth in APB Opinion 25, "Accounting for Stock
Issued to Employees" ("APB 25") but disclose the pro forma effects on net
income had the fair value of the options been expensed. The Company has
elected to continue to apply APB 25 in accounting for its stock option
incentive plans.
NOTE C - SEGMENT REPORTING
The Company has two reportable segments: auto receivables and consumer
receivables. The auto receivables segment is in the business of liquidating
sub-prime auto receivables. The consumer receivables segment liquidates
nonperforming consumer credit card receivables.
The accounting policies of the segments are those described in the summary of
significant accounting policies.
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
------------------------------------------- --------------------------------------------
Auto Consumer Auto Consumer
Receivables Receivables Total Receivables Receivables Total
----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Service fee income $ 240,000 $ 240,000 $ 50,000 $ 50,000
Interest income 3,720,000 $ 7,643,000 11,363,000 4,209,000 $724,000 4,933,000
Interest expense 821,000 2,813,000 3,634,000 746,000 18,000 764,000
Depreciation 97,000 97,000 76,000 76,000
Segment income (loss) (501,000) 3,234,000 2,733,000 (3,225,000) 685,000 (2,540,000)
Segment assets 9,917,000 17,643,000 27,560,000 17,177,000 952,000 18,129,000
</TABLE>
NOTE D - AUTO LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Substantially all loans are at fixed rates of interest, collateralized by
automobiles, and have remaining maturities of 5 years or less. Each automobile
loan provides for full amortization, equal monthly payments and can be fully
prepaid by the borrower at any time without penalty. The Company purchases the
loans from dealers at a discount from the amount financed under the contract.
Substantially all borrowers are located in the northeastern and mid-atlantic
states.
F-9
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1999 and 1998
NOTE D - AUTO LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)
As of September 30, 1999 and 1998, nonaccrual auto loans receivable aggregated
$206,000 and $385,000, respectively.
Changes in the allowance for credit losses consisted of the following:
1999 1998
------------- -------------
Balance, beginning of period $ 1,209,000 $ 398,000
Provisions 1,438,000 1,897,000
Charge-offs (1,662,000) (1,632,000)
Recoveries 137,000 546,000
------------- -------------
Balance, end of period $ 1,122,000 $ 1,209,000
============= =============
NOTE E - CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION
As of September 30, 1999, the Company used the interest method on portfolios
with carrying values aggregating $9,494,000 and the cost recovery method on
portfolios with carrying values aggregating $7,006,000.
NOTE F - FURNITURE AND EQUIPMENT
Furniture and equipment as of September 30, 1999 and 1998 consist of the
following:
1999 1998
----------- -----------
Furniture $ 46,000 $ 46,000
Equipment 374,000 260,000
----------- -----------
420,000 306,000
Less accumulated depreciation 246,000 156,000
----------- -----------
Balance, end of period $ 174,000 $ 150,000
=========== ===========
Depreciation expense for the years ended September 30, 1999 and 1998 aggregated
$97,000 and $76,000, respectively.
NOTE G - RESTRICTED CASH
In connection with the sale of loans in 1997, the Company was required to
deposit funds into separate cash accounts with trustees for possible interest
adjustments due to borrowers prepaying the loans.
F-10
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1999 and 1998
NOTE H - SERVICING ASSETS AND RESIDUAL INTEREST
Changes in servicing assets and residual interest for the two years ended
September 30, 1999 are as follows:
Servicing Residual
Assets Interest
-------------- ------------
Balance, September 30, 1997 $ 897,000 $ 952,000
Amortization/principal payments (560,000) (551,000)
Impairment loss (250,000)
Transfer to loans receivable (301,000)
Change in market value (137,000)
-------------- ------------
Balance, September 30, 1998 36,000 14,000
Amortization/principal payments (36,000) (14,000)
-------------- ------------
Balance, September 30, 1999 $ 0 $ 0
============== ============
In May 1998, the Company repurchased the outstanding Certificates on the 1996-1
Trust, which had a remaining principal balance of $5,953,000 for an aggregate
purchase price of $5,544,000. Of the purchase price, $4,600,000 was funded
directly by a line of credit and $244,000 was funded directly by an affiliate.
Accordingly, the remaining related servicing asset was reclassified to loans
receivable.
NOTE I - FINANCING
In January 1998, the Company entered into a two year credit facility with a bank
under which the Company can borrow, at an advance rate of up to 83% of eligible
loans, up to a maximum of $20 million. In June 1999, the credit facility was
reduced to a maximum of $8 million. As of September 30, 1999, the Company's
advance rate was 75% of eligible loans and advances aggregated $5,406,000. The
advances bear interest at the prime rate plus 1%. This line of credit contains
covenants requiring, among other things, maintenance of certain financial ratios
and minimum tangible net worth. Additionally, the principal stockholders of the
Company pledged 2,252,000 shares of the Company's common stock as additional
collateral. As of September 30, 1999, based upon the most restrictive covenants,
the Company is precluded from declaring or paying cash dividends.
In April 1998, the Company entered into a demand credit facility with a bank
under which it can borrow at an advance rate of 65% of eligible loans receivable
up to a maximum of $1 million. As of September 30, 1999, advances under this
facility aggregated $16,000. The advances bear interest at the prime rate plus
4%.
In March 1999, the Company borrowed funds from three financial institutions
aggregating $52,000,000. Each financial institution's note is collateralized by
specific portfolios of consumer receivables acquired for liquidation. The
borrowings from the financial institutions, which had aggregate outstanding
balances of $10,676,000 at September 30, 1999, are as follows:
a) A bank provided $10,000,000 in exchange for a note payable with
interest at the prime rate plus 4.25% per annum and the first million
dollars collected on the portfolio after repayment of the note and
interest. As of September 30, 1999, $779,000 was outstanding.
b) A factoring company loaned the Company $5,000,000,in exchange for a
note payable with interest at 20% per annum. As of September 30, 1999,
the outstanding balance due was $1,856,000.
F-11
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1999 and 1998
NOTE I - FINANCING (CONTINUED)
c) An investment banking firm provided $37,000,000 in exchange for a note
payable with interest at the LIBOR rate plus 2% plus $1,500,000 to be
collected on a different portfolio (payable after the $5,000,000 note
payable to the factoring company is repaid) and sharing in subsequent
collections, net of expenses of the portfolio collateralizing this
obligation. As of September 30, 1999, the outstanding balance of the
note was $8,000,000.
NOTE J - INCOME TAXES
The significant components of the Company's deferred tax assets and
liabilities as of September 30, 1999 and 1998 are as follows:
1999 1998
------------- -------------
Deferred tax assets:
Allowance for credit losses $ 528,000 $ 989,000
Net operating losses 82,000 443,000
------------- -------------
Total deferred tax assets 610,000 1,432,000
Deferred tax liabilities:
Restricted cash and cash equivalents 181,000
Valuation allowance (885,000)
------------- -------------
Net deferred tax assets $ 610,000 $ 366,000
============= =============
The components of the provision (benefit) for income taxes for the years ended
September 30, 1999 and 1998 are as follows:
1999 1998
------------- --------------
Current:
Federal $ 698,000 $ (458,000)
------------- --------------
Deferred:
Federal (138,000) (451,000)
State (106,000) (135,000)
------------- --------------
(244,000) (586,000)
------------- -------------
Provision (benefit) for income taxes $ 454,000 $ (1,044,000)
============= ==============
The deferred tax valuation allowance decreased by $885,000 during the year ended
September 30, 1999 and increased by $885,000 during the year ended September 30,
1998.
As of September 30,1999, the Company has a net operating loss carryforward for
state tax purposes aggregating $1,077,000 expiring in 2005.
F-12
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1999 and 1998
NOTE J - INCOME TAXES (CONTINUED)
The difference between the statutory federal income tax (benefit) rate on the
Company's pre-tax income (loss) and the Company's effective income tax rate is
summarized as follows:
1999 1998
----- -----
Statutory federal income tax rate 34.0% (34.0)%
State income tax, net of federal benefit (1.8) (2.6)
Reversal of income tax accruals (11.7)
Other .4 2.8
Increase (decrease) in valuation allowance (18.4) 16.3
----- ----
Effective income tax rate 14.2% (29.2)%
===== ======
NOTE K - RELATED PARTY TRANSACTIONS
The Company leases its facilities through July 2000 pursuant to a sublease from
a company controlled by the principal stockholders of the Company (the
"Affiliate"). The terms of the sublease are substantially identical to the terms
of the underlying lease between the Affiliate and the lessor. The future minimum
lease payment as of September 30, 2000 is $87,000 which is payable during the
year ended September 30, 2000.
Rent expense for the years ended September 30, 1999 and 1998 was approximately
$121,000 and $127,000, respectively, (including $108,000 and $109,000 to the
Affiliate).
During the years ended September 30, 1999 and 1998, salaries, related payroll
taxes and other expenses allocated from the Affiliate aggregated $49,000 and
$74,000, respectively. Management allocates costs monthly based upon its
estimate of the cost of services provided by the Affiliate.
During the years ended September 30, 1999 and 1998, the Affiliate advanced funds
to the Company. Interest expense, at 12 percent per annum, aggregated $218,000
and $44,000 in the years ended September 30, 1999 and 1998, respectively.
Additionally, the Affiliate purchased a $700,000 loan participation from the
bank that advanced the Company $10,000,000 and a $500,000 subordinated
participation from a factoring company that loaned the Company $5,000,000 (see
Note I). As of September 30, 1999, $500,000 was outstanding on these obligations
and are included in notes payable.
NOTE L - COMMITMENTS
During October 1998, the Company entered into employment agreements with two
executives which expire in September 2001. Under the terms of the agreements,
the aggregate annual base salaries effective September 30, 1999 are $320,000.
Additionally, each executive may be granted annual bonuses.
The Company has a one-year consulting agreement with a director of the Company,
pursuant to which he will be paid an annual fee of $75,000. Included in the
accompanying consolidated statements of operations for the year ended September
30, 1999 and 1998 is $75,000, per annum of consulting expense related to this
and a prior consulting agreement.
F-13
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1999 and 1998
NOTE M - STOCKHOLDERS' EQUITY
[1] Stock options:
The Company has a stock option plan under which 395,000 shares of common
stock are reserved for issuance upon exercise of either incentive or
nonincentive stock options which may be granted from time to time by the
Board of Directors to employees and others. The Board of Directors
determines the option price (not to be less than fair market value for
incentive options) at the date of grant. The options have a maximum term
of 10 years and outstanding options expire from September 2005 through
June 2009.
The Company applies APB 25 in accounting for its stock option incentive
plan and, accordingly, recognizes compensation expense for the difference
between the fair value of the underlying common stock and the exercise
price of the option at the date of grant. Had compensation cost for the
Company's stock option plan been determined based upon the fair value at
the grant date for awards under the plans consistent with the methodology
prescribed under SFAS No. 123, the Company's proforma net income and net
income per share for 1999 would have been approximately $2,600,000 and
$.69, respectively. The weighted average fair value of the options
granted during 1999 were $1.46 per share on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
dividend yield 0%, volatility 94%, expected life 10 years, risk free
interest rate of 5.9%.
The following table summarizes stock option transactions under the plan:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------
1999 1998
------------------------- --------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- -------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding options at the beginning of year 284,500 $4.34 284,500 $4.34
Options granted 132,000 1.63
Options exercised (25,000) .01
----------- ----- ---------- -----
Outstanding options at the end of year 391,500 $3.70 284,500 $4.34
========== ===== ========== =====
</TABLE>
The following table summarizes information about the Plan's outstanding options
as of September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life (in Years) Price Exercisable Price
-------------- ----------- --------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.625 - $1.75 146,000 8.72 $1.64 63,833 $1.65
$4.50 - $5.00 245,500 6.18 $4.93 245,500 $4.93
</TABLE>
As of September 30, 1999, 395,000 shares have been reserved for the exercise of
stock options, including 3,500 shares available for future grant.
F-14
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1999 and 1998
NOTE M - STOCKHOLDERS' EQUITY (CONTINUED)
[2] Common stock:
During the year ended September 30, 1997, an officer terminated his
employment with the Company. Pursuant to the agreement, 25,000 shares
were subject to cancellation should losses, through December 31, 1998, on
certain loans exceed a defined amount. During the year ended September
30, 1999, losses exceeded such amount and the shares were canceled.
NOTE N - RETIREMENT PLAN
The Company maintains a 401(k) Retirement Plan covering all of its eligible
employees. Matching contributions to the plan are made at the discretion of the
Board of Directors each plan year. There were no contributions for the years
ended September 30, 1999 and 1998.
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Values of Financial Instruments" ("SFAS 107") requires disclosure of fair value
information about financial instruments, whether or not recognized on the
balance sheet, for which it is practicable to estimate that value. Because no
market exists for certain of the Company's assets and liabilities, fair value
estimates are based upon judgments regarding credit risk, investor expectation
of economic conditions, normal cost of administration and other risk
characteristics, including interest rate and prepayment risk. These estimates
are subjective in nature and involve uncertainties and matters of judgment which
significantly affect the estimates.
Fair value estimates are based on existing balance sheet financial instruments
without attempting to estimate the value of anticipated future business and the
value of assets and liabilities that are not considered financial instruments.
The tax ramifications related to the realization of the unrealized gains and
losses can have a significant effect on the fair value estimates and have not
been considered in the estimates.
The following summarizes the information as of September 30, 1999 and 1998 about
the fair value of the financial instruments recorded on the Company's financial
statements in accordance with SFAS 107:
<TABLE>
<CAPTION>
1999 1998
-------------------------------- --------------------------------
Carrying Value Fair Value Carrying Value Fair Value
-------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Cash, restricted cash and
and cash equivalents $ 829,000 $ 829,000 $ 225,000 $ 225,000
Consumer receivables
acquired for liquidation 16,500,000 21,500,000 919,000 919,000
Loans receivable 8,344,000 9,985,000 14,985,000 16,203,000
Servicing assets and
residual interests 50,000 50,000
Advances under lines of
credit, notes payable and
due to affiliates 18,531,000 18,531,000 12,366,000 12,366,000
</TABLE>
F-15
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1999 and 1998
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The methodology and assumptions utilized to estimate the fair value of the
Company's financial instruments are as follows:
Cash, restricted cash and cash equivalents:
The carrying amount approximates fair value.
Consumer receivables acquired for liquidation:
The Company has estimated the fair value based on the present value of expected
future cash flows.
Loans receivable, servicing assets and residual interests:
The Company has estimated the fair value based on the present value of expected
future cash flows.
Advances under lines of credit, notes payable and due to affiliates:
Since these are primarily variable rate and short-term, the carrying amounts
approximate fair value.
F-16
<PAGE>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Information contained under the caption "Directors, Executive
Officers, Promoters and Control Persons" in the Company's definitive Proxy
Statement to be filed with the Commission on or before January 27, 2000, is
incorporated by reference in response to this Item 9.
Item 10. Executive Compensation.
Information contained under the caption "Executive
Compensation" in the Company's definitive Proxy Statement to be filed with the
Commission on or before January 27, 2000 is incorporated by reference in
response to this Item 10.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Information contained under the caption "Security Ownership of
Certain Beneficial Owners and Management" in the Company's definitive Proxy
Statement to be filed with the Commission on or before January 27, 2000 is
incorporated herein by reference in response to this Item 11.
Item 12. Certain Relationships and Related Transactions
Information contained under the caption "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement to be filed with the
Commission on or before January 30, 2000 is incorporated by reference in
response to this Item 12.
-26-
<PAGE>
Part IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number
--------
3.1 Certificate of Incorporation. (1)
3.2 By laws. (4)
10.1 Consulting Agreement, by and between the Company and Arthur Stern. (2)
10.2 Employment Agreement dated October 1, 1998, by and between the
Company and Gary Stern. (4)
10.3 Employment Agreement dated October 1, 1998, by and between the
Company and Mitchell Herman. (4)
10.4 Credit Facility with BankAmerica. (3)
21. Subsidiaries of the Company.
27. Financial Data Schedule.
1. Incorporated by reference to Exhibit 3.1 to the Company's Registration
Statement on Form SB-2 (File No. 33-97212).
2. Incorporated by reference to Exhibit 10.7 to the Company's Registration
Statement on Form SB-2 (File No. 33-97212).
3. Incorporated by reference to Exhibit 10.3 to the Company's Registration
Statement on Form SB-2 (File No. 33-97212).
4. Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended September 30, 1998.
(b) Reports on Form 8-K
During the quarter ended September 30, 1999, the Registrant filed a
current report on Form 8-K under Item 5 on July 22, 1999.
-27-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ASTA FUNDING, INC.
Dated: December 23, 1999 By:/s/Gary Stern
-----------------
Gary Stern
President
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
/s/Gary Stern President and Director December 23, 1999
- ----------------------
Gary Stern
/s/Mitchell Herman Chief Financial Officer, Secretary, December 23, 1999
- ---------------------- Chief Accounting Officer and
Mitchell Herman Director
/s/Arthur Stern Director December 23, 1999
- ----------------------
Arthur Stern
/s/Martin Fife Director December 23, 1999
- ----------------------
Martin Fife
/s/Herman Badillo Director December 23, 1999
- ----------------------
Herman Badillo
/s/General Buster Glosson Director December 23, 1999
- -------------------------
General Buster Glosson
/s/Edward Celano Director December 23, 1999
- -----------------
Edward Celano
-28-
</TABLE>
