<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ___________
Commissions file number: 0-26906
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ASTA FUNDING, INC.
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(Exact name of small business issuer as specified in its charter)
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<S> <C>
Delaware 22-3388607
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(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
210 Sylvan Ave., Englewood Cliffs, New Jersey 07632
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(Address of principal executive offices) (Zip Code)
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Issuer's telephone number: (201) 567-5648
Former name, former address and former fiscal year, if changed since last
report: N/A
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of February 7, 2000, the
registrant had 3,945,000 common shares outstanding.
Transitional Small Business Disclosure Format (check one): Yes __ No X
<PAGE>
Asta Funding, Inc.
Form 10-QSB December 31, 1999
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31,1999 (unaudited) and
September 30, 1999
Consolidated Statements of Operations for the three-month periods
ended December 31, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the three-month periods
ended December 31, 1999 and 1998 (unaudited)
Notes to consolidated financial statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
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PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
Asta Funding, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, September 30,
------------ -------------
1999 1999
---- ----
Unaudited
Assets
Cash $ 871,000 $ 780,000
Restricted, net 50,000 49,000
Consumer receivables acquired for liquidation 8,910,000 16,500,000
Auto loans receivable 6,990,000 8,344,000
Furniture and equipment, net 194,000 174,000
Repossessed automobiles, net 367,000 460,000
Other assets 217,000 643,000
Deffered income taxes 530,000 610,000
------------ ------------
Total assets $ 18,129,000 $ 27,560,000
============ ============
Liabilities and Stockholders' Equity
Liabilities
Accounts payable and accrued expenses $ 170,000 $ 256,000
Advances under lines of credit 5,347,000 5,422,000
Notes payable 416,000 10,636,000
Income taxes payable 512,000 663,000
Due to affiliate 2,363,000 2,473,000
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Total liabilities 8,808,000 19,450,000
------------ ------------
Stockholders' Equity
Common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding
3,945,000 39,000 39,000
Additional paid-in capital 9,602,000 9,602,000
Accumulated deficit (320,000) (1,531,000)
------------ ------------
Total stockholders' equity 9,321,000 8,110,000
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Total liabilities and stockholders' equity $ 18,129,000 $ 27,560,000
============ ============
See accompanying notes to consolidated financial statements
3
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Asta Funding, Inc. and Subsidiaries
Consolidated Statements of Operations
Unaudited
Three Months Ended
December 31,
----------------------------
1999 1998
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Revenues:
Interest $3,109,000 $1,185,000
Servicing fees 27,000 43,000
Other income -- 17,000
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3,136,000 1,245,000
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Expenses:
General and administrative 875,000 626,000
Provision for credit losses 55,000 250,000
Interest 189,000 277,000
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1,119,000 1,153,000
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Income before income taxes 2,017,000 92,000
Income tax expense 806,000 37,000
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Net income $1,211,000 $ 55,000
========== ==========
Net income per share - Basic $ 0.31 $ 0.01
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- Diluted $ 0.30 $ 0.01
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Weighted average number of shares
outstanding - Basic 3,945,000 3,945,000
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- Diluted 4,026,000 3,945,000
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See accompanying notes to consolidated financial statements
4
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Asta Funding, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,211,000 $ 55,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,000 82,000
Provision for losses 55,000 250,000
Deferred income taxes 80,000 34,000
Expenses advanced by affiliate 9,000 21,000
Changes in:
Restricted cash (1,000) (33,000)
Repossessed automobiles held for sale 93,000 (265,000)
Other assets 426,000 365,000
Income taxes payable (151,000) --
Accounts payable and accrued expenses (86,000) (109,000)
------------ ------------
Net cash provided by operating activities 1,658,000 400,000
Cash flows from investing activities:
Auto loans purchased -- (1,317,000)
Auto loan principal payments 1,299,000 1,943,000
Purchase of consumer receivables acquired for liquidation -- (1,340,000)
Principal collected on receivables acquired for liquidation 7,590,000 --
Capital expenditures (42,000) (4,000)
------------ ------------
Net cash provided by (used in) investing activities 8,847,000 (718,000)
Cash flows from financing activities:
Advances from affiliate (110,000) 1,256,000
Advances (repayments) under lines of credit (84,000) (978,000)
Repayments of notes payable (10,220,000) --
------------ ------------
Net cash (used in) provided by financing activities (10,414,000) 278,000
------------ ------------
Increase (decrease) in cash 91,000 (40,000)
Cash at the beginning of period 780,000 163,000
------------ ------------
Cash at end of period $ 871,000 $ 123,000
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period
Interest $ 183,000 $ 258,000
Income taxes $ 875,000 $ --
</TABLE>
See accompanying notes to consolidated financial statements
5
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Asta Funding, Inc.
Notes to Consolidated Financial Statements
Note 1: Basis of Presentation
Asta Funding, Inc. and its wholly-owned subsidiaries (collectively, the
"Company") is a diversified consumer finance company that is engaged in the
business of purchasing, servicing and selling distressed consumer receivables.
Distressed consumer receivables are the unpaid debts of individuals to banks,
finance companies and other credit providers. Most of the Company's receivables
are MasterCard and Visa credit card accounts which were charged-off by the
issuing banks for non-payment. Prior to May 1, 1999, the Company's business was
focused on purchasing, servicing and selling retail installment contracts
originated by dealers in the sale primarily of used automobiles to sub-prime
borrowers.
The consolidated balance sheet as of December 31, 1999, the consolidated
statements of operations for the three-month periods ended December 31, 1999 and
1998, and the consolidated statements of cash flows for the three-month periods
ended December 31, 1999 and 1998, have been prepared by the Company without an
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of the
Company at December 31, 1999 and September 30, 1999, the results of operations
for the three month periods ended December 31, 1999 and 1998 and the cash flows
for the three-month periods ended December 31, 1999 and 1998 have been made. The
results of operations for the three-month periods ended December 31, 1999 and
1998 are not necessarily indicative of the operating results for any other
interim period or the full fiscal year.
Pursuant to the rules and regulations of the Securities and Exchange Commission,
certain information and footnote disclosures required under generally accepted
accounting principles have been condensed or omitted from the presented
financial statements. We suggest that these financial statements be read in
conjunction with the financial statements and notes thereto included in our
Annual Report on Form 10-KSB for the fiscal year ended September 30, 1999.
Note 2: Principles of Consolidation
The consolidated financial statements include the accounts of Asta Funding, Inc.
and its wholly-owned subsidiaries: Asta Auto Receivables Company; E.R.
Receivables Corp., L.L.C.; RAC Acceptance Co., L.L.C.; Palisades Collections,
L.L.C.; Asta Funding Acquisition I, LLC; Asta Funding Acquisition II, LLC; Asta
Funding Acquisition III, LLC; and Asta Funding.Com, LLC. All significant
intercompany balances and transactions have been eliminated in consolidation.
Note 3: Auto Loans Receivable:
The contracts which the Company purchased from dealers provide for finance
charges of between 14.95% and 28.95% per annum. Each contract provides for full
amortization, equal monthly payments and permits prepayments by the borrower at
any time without penalty. The Company generally purchased contracts at a
discount from the full amount financed under a contract.
Note 4: Consumer Receivables Acquired for Liquidation:
Accounts acquired for liquidation are stated at their net realizable value and
consist of consumer loans to individuals throughout the country.
Note 5: Income recognition:
The Company recognizes income on distressed consumer 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 is recognized at that
time. In addition, a detailed review of loans will cause earlier suspension if
collection is doubtful.
6
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Asta Funding, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company 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 the Company's receivables are MasterCard and Visa
credit card accounts which were charged-off by the issuing banks for
non-payment. The Company may also purchase bulk receivable portfolios that
include both distressed and performing loans. Prior to May 1, 1999, the
Company's business was focused on purchasing, servicing and selling retail
installment contracts originated by dealers in the sale primarily of used
automobiles to sub-prime borrowers.
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 generates revenues, earnings and cash flow primarily through the
purchase and collection of principal, interest and other payments on consumer
receivables acquired for liquidation and automobile contracts.
This Form 10-QSB 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-QSB 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-QSB. 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.
In the following discussions, most percentages and dollar amounts have been
rounded to aid presentation. As a result, all figures are approximations.
7
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Asta Funding, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of operations
The three-month period ended December 31, 1999, compared to the three-month
period ended December 31, 1998
Revenues. During the three-month period ended December 31, 1999, revenues
increased $1.9 million or 158.3% to $3.1 million from $1.2 million for the
three-month period ended December 31, 1998. Interest income increased $1.9
million or 158.3% to $3.1 million from $1.2 million for the three-months ended
December 31, 1998, and represented 99% of total revenues for the three-month
period ended December 31, 1999. The increase in interest income is due to the
increase in the dollar amount of collections on consumer receivables acquired
for liquidation during the three-month period ended December 31, 1999, as
compared to the same period in the prior year. The Company earned servicing fees
of $27,000 for the three months ended December 31, 1999, as compared to $43,000
for the three-month period ended December 31, 1998. The decrease in servicing
fee income is due to a decrease in the dollar amount of contracts being serviced
for the three-months ended December 31, 1999, as compared to the same period in
the prior year.
Expenses. During the three-month period ended December 31, 1999, general and
administrative expenses increased $249,000 or 39.5% to $875,000 from $626,000
for the three-months ended December 31, 1998 and represented 78.0% of total
expenses. The increase in general and administrative expenses is due to a
increase in servicing expenses associated with the consumer receivables acquired
for liquidation during the three-month period ended December 31, 1999, as
compared to the same period in the prior year.
Interest expense decreased $88,000 or 31.8% to $189,000 from $277,000 for the
three-month period ended December 31, 1999, compared to the same period in the
prior year and represented 17.0% of total expenses for the three-month period
ended December 31, 1999. The decrease is due to an decrease in the outstanding
borrowings by the Company under the lines of credit during the three-month
period ended December 31, 1999, as compared to the same period in the prior
year.
During the three-month period ended December 31, 1999, the provision for credit
losses decreased $195,000 or 78.0% to $55,000 from $250,000 for the three-months
ended December 31, 1998 and represented 5.0% of total expenses. The decrease in
the provision is due to the Company not purchasing any contracts for the
three-months ended December 31, 1999.
Liquidity and Capital Needs
The Company's primary sources of cash from operating activities include borrower
payments on consumer receivables acquired for liquidation and automobile
contracts. The Company's primary uses of cash include its purchases of consumer
receivables acquired for liquidation. As of December 31, 1999, the Company's
cash and cash equivalents increased to $871,000 from $780,000 at September 30,
1999. The increase in cash was due to an accumulation of cash at the end of
December 1999 that was not yet available to repay debt.
Net cash provided by operating activities was $1.6 million during the
three-months ended December 31,1999, compared to net cash provided of $400,000
during the three-months ended December 31, 1998. Net cash provided by investing
activities was $8.8 million during the three-months ended December 31, 1999,
compared to net cash used of $718,000 during the three months ended December 31,
1998. Net cash used in financing activities was $10.4 million during the
three-months ended December 31, 1999, compared to net cash provided of $278,000
during the three-months December 31, 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 December 31, 1999, the Company had a $4.0 million line of credit with a bank
to purchase consumer receivables and was in negotiations with other financial
institutions for additional lines of credit.
In December 1999, a bank provided the Company with a $4.0 million line of
credit, payable on demand with interest at the prime rate plus 1%. As of
December 31, 1999, the outstanding balance due was $1.2 million.
8
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Asta Funding, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 consumer receivables acquired for
liquidation. During the year ended September 30, 1999 and the three-months ended
December 31, 1999, the repaid approximately $41.0 million and $10.2 million
respectively of the $52.0 million borrowed.
o 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 December 31, 1999, the bank had been paid in full.
o A factoring company loaned the Company $5.0 million in exchange for a
note payable with interest at 20% per annum. As of December 31, 1999, the
outstanding balance due was $416,000.
o An investment banking firm provided $37.0 million in exchange for a note
payable with interest at the LIBOR rate plus 2% plus $750,000 to be
collected on a different portfolio (payable after the $5 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 December 30, 1999, the note had been paid in full but
the other obligations were still due.
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 December 31, 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 of the Credit Facility from $20
million to $8 million. At December 31, 1999, advances under this facility
aggregated $4.1 million.
The Company anticipates the funds available under its current funding agreements
and credit facilities as well as funds made available by Asta Group,
Incorporated, an affiliate of the Company, and cash from operations will be
sufficient to satisfy the Company's estimated cash requirements for at least the
next 12 months. If for any reason the Company's available cash otherwise proves
to be insufficient to fund operations (because of future changes in the
industry, general economic conditions, unanticipated increases in expenses, or
other factors), the Company may be required to seek additional funding.
Year 2000
Prior to January 1, 2000, the Company conducted a review of its IT and non-IT
systems to identify those systems which could be affected by the potential Year
2000 problem. As a result, the Company believes that all of its IT and non-IT
systems were assessed, and if necessary, remedied to be Year 2000 compliant. All
of the Company's IT and non_IT systems have continued to function beyond January
1, 2000 without any business interruption. As the Year 2000 progresses, however,
the Company may experience problems associated with the Year 2000 that have not
yet been discovered. The Company will continue to monitor and test systems as
necessary and will remain in place through the end of February 2000.
As of December 31, 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.
9
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Asta Funding, Inc.
Form 10-QSB December 31, 1999
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
As of the date of this filing, the Company was not involved in any
material litigation in which it is the defendant. The Company regularly
initiates legal proceedings as a plaintiff concerning its routine collection
activities.
Item 6. Exhibits and Reports on Form 8-K
a. The following exhibits are filed as part of this quarterly report on
form 10-QSB.
27.1 Financial Data Schedule
b. No reports on form 8-K were filed by the Company during the quarter
ended December 31, 1999.
10
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Asta Funding, Inc.
Form 10-QSB December 31, 1999
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ASTA FUNDING, INC.
(Registrant)
Date: February 11, 2000 By: /s/ Gary Stern
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Gary Stern, President, Chief Executive Officer
(Principal Executive Officer)
Date: February 11, 2000 By: /s/ Mitchell Herman
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Mitchell Herman, Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
11
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 871,000
<SECURITIES> 0
<RECEIVABLES> 16,918,000
<ALLOWANCES> 1,018,000
<INVENTORY> 367,000
<CURRENT-ASSETS> 0
<PP&E> 462,000
<DEPRECIATION> 268,000
<TOTAL-ASSETS> 27,560,000
<CURRENT-LIABILITIES> 19,450,000
<BONDS> 0
0
0
<COMMON> 39,000
<OTHER-SE> 9,602,000
<TOTAL-LIABILITY-AND-EQUITY> 27,560,000
<SALES> 3,136,000
<TOTAL-REVENUES> 3,136,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 875,000
<LOSS-PROVISION> 55,000
<INTEREST-EXPENSE> 189,000
<INCOME-PRETAX> 2,017,000
<INCOME-TAX> 806,000
<INCOME-CONTINUING> 1,211,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,211,000
<EPS-BASIC> 0.31
<EPS-DILUTED> 0.30
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