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 March 31, 2002.
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
ASTA FUNDING, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-3388607
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
210 Sylvan Ave., Englewood Cliffs, New Jersey 07632
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (201) 567-5648
Former name, former address and former fiscal year, if changed since last
report: N/A
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 10, 2002, the registrant
had approximately 4,045,000 common shares outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Asta Funding, Inc.
Form 10-QSB March 31, 2002
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2002
(unaudited) and September 30, 2001
Consolidated Statements of Operations for the three and
six-month periods ended March 31, 2002 and 2001
(unaudited)
Consolidated Statements of Cash Flows for the three and
six-month periods ended March 31, 2002 and 2001
(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 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Asta Funding, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, September 30,
--------------- ---------------
2002 2001
--------------- ---------------
Unaudited
Assets
Cash $ 4,933,000 $ 5,689,000
Restricted cash, net 54,000 53,000
Consumer receivables acquired for liquidation 37,777,000 43,784,000
Auto loans receivable, net 302,000 786,000
Finance receivables 2,724,000 3,086,000
Furniture and equipment, net 246,000 150,000
Repossessed automobiles, net 84,000 171,000
Deferred income taxes 466,000 350,000
Prepaid income taxes -- 596,000
Other assets 1,027,000 162,000
--------------- ---------------
Total assets $ 47,613,000 $ 54,827,000
=============== ===============
Liabilities and Stockholders' Equity
Liabilities
Debt $ 16,566,000 $ 29,666,000
Other liabilities 2,983,000 2,470,000
Income taxes payable 220,000 --
Due to affiliate -- 10,000
--------------- ---------------
Total liabilities 19,769,000 32,146,000
--------------- ---------------
Stockholders' Equity
Preferred stock, $.01 par value; authorized 5,000,000;
issued and outstanding - none
Note change in the nuimber of authorized shares
Common stock, $.01 par value; authorized 30,000,000 shares;
issued and outstanding 4,045,000 at March 31, 2002 and
3,996,000 at September 30, 2001 40,000 40,000
Additional paid-in capital 9,986,000 9,751,000
Retained earnings 17,818,000 12,890,000
--------------- ---------------
Total stockholders' equity 27,844,000 22,681,000
--------------- ---------------
Total liabilities and stockholders' equity $ 47,613,000 $ 54,827,000
=============== ===============
See accompanying notes to consolidated financial statements
Asta Funding, Inc. and Subsidiaries
Consolidated Statements of Operations
Unaudited
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
--------------- --------------- --------------- ---------------
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Revenues:
Interest $ 10,287,000 $ 6,112,000 $ 18,688,000 $ 10,240,000
Other 95,000 4,000 96,000 10,000
--------------- --------------- --------------- ---------------
10,382,000 6,116,000 18,784,000 10,250,000
--------------- --------------- --------------- ---------------
Expenses:
General and administrative 1,887,000 1,199,000 3,330,000 2,281,000
Third-party servicing 2,371,000 679,000 4,722,000 679,000
Provision for losses 325,000 300,000 400,000 400,000
Interest 1,387,000 247,000 2,095,000 265,000
--------------- --------------- --------------- ---------------
5,970,000 2,425,000 10,547,000 3,625,000
--------------- --------------- --------------- ---------------
Income before income taxes 4,412,000 3,691,000 8,237,000 6,625,000
Income tax expense 1,778,000 1,480,000 3,307,000 2,660,000
--------------- --------------- --------------- ---------------
Net income $ 2,634,000 $ 2,211,000 $ 4,930,000 $ 3,965,000
=============== =============== =============== ===============
Net income per share - Basic $ 0.65 $ 0.56 $ 1.23 $ 1.00
--------------- --------------- --------------- ---------------
- Diluted $ 0.59 $ 0.54 $ 1.12 $ 0.97
--------------- --------------- --------------- ---------------
Weighted average number of shares
outstanding - Basic 4,036,000 3,968,000 4,021,000 3,968,000
--------------- --------------- --------------- ---------------
- Diluted 4,427,000 4,081,000 4,392,000 4,080,000
--------------- --------------- --------------- ---------------
See accompanying notes to consolidated financial statements
Asta Funding, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Unaudited Six Months Ended Six Months Ended
March 31, March 31,
--------------- ---------------
2002 2001
--------------- ---------------
Cash flows from operating activities:
Net income $ 4,930,000 3,965,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 60,000 60,000
Provision for losses 400,000 400,000
Deferred income taxes (116,000) 408,000
Changes in:
Restricted cash (1,000) --
Repossessed automobiles held for sale 87,000 30,000
Prepaid income taxes 596,000 --
Other assets (865,000) (481,000)
Income taxes payable 220,000 (4,277,000)
Other liabilities 513,000 (56,000)
--------------- ---------------
Net cash provided by operating activities 5,824,000 49,000
Cash flows from investing activities:
Auto loan principal payments 489,000 1,320,000
Purchase of consumer receivables acquired for liquidation (17,032,000) (25,384,000)
Principal collected on receivables acquired for liquidation 23,039,000 11,364,000
Finance receivables (38,000) (2,541,000)
Capital expenditures (156,000) (25,000)
--------------- ---------------
Net cash provided by (used in) investing activities 6,302,000 (15,266,000)
Cash flows from financing activities:
Advances from affiliate (10,000) 474,000
Proceeds from exercise of options 228,000 --
Advances under lines of credit, net 2,682,000 740,000
Repayments of notes payable, net (15,782,000) 5,862,000
--------------- ---------------
Net cash (used in) provided by financing activities (12,882,000) 7,076,000
--------------- ---------------
Decrease in cash (756,000) (8,141,000)
Cash at the beginning of period 5,689,000 10,488,000
--------------- ---------------
Cash at end of period $ 4,933,000 $ 2,347,000
--------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid during the period
Interest $ 576,000 $ 163,000
Income taxes $ 2,607,000 $ 4,750,000
Asta Funding, Inc.
Notes to Consolidated Financial Statements
Note 1: Basis of Presentation
Asta Funding, Inc., together with its wholly owned subsidiaries, is a
diversified consumer finance company that is engaged in the business of
purchasing, managing and servicing non-conforming and distressed consumer
receivables. Non-conforming consumer receivables are the obligations of
individuals that have incurred credit impairment either at the time the
obligation was originated or subsequent to origination. Distressed consumer
receivables are the unpaid debts of individuals to banks, finance companies and
other credit providers. A large portion of our distressed consumer receivables
are MasterCard(R), Visa(R) and other credit card accounts which were charged-off
by the issuing banks for non-payment. We also, to a lesser extent, factor
commercial invoices and specialize in providing working capital to growing
companies with unique financing needs. Typical customers are manufacturers,
wholesale distributors and service companies. We are committed to working
closely with growth companies to meet their specialized financing needs and
anticipate growth in this business by providing prompt and reliable service to
our customers.
The consolidated balance sheet as of March 31, 2002, the consolidated statements
of operations for the three and six-month periods ended March 31, 2002 and 2001,
and the consolidated statements of cash flows for the three and six-month
periods ended March 31, 2002 and 2001, have been prepared by us without an
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of us
at March 31, 2002 and September 30, 2001, the results of operations for the
three and six-month periods ended March 31, 2002 and 2001 and the cash flows for
the three and six-month periods ended March 31, 2002 and 2001 have been made.
The results of operations for the three and six-month periods ended March 31,
2002 and 2001 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, 2001.
Note 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.
Note 3: 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 4: Finance Receivables:
Finance receivables are factored accounts receivable primarily with full
recourse.
Note 5: Stockholders' Equity:
On May 1, 2002, our stockholders approved an increase in the number of shares of
common stock authorized from 10,000,000 to 30,000,000 and authorized 5,000,000
shares of preferred stock in one or more series with rights, preferences,
privileges and restrictions thereof to be determined by our board of directors
at the time of issuance.
Asta Funding, Inc.
Notes to Consolidated Financial Statements
Note 6: Debt:
We have a $20 million line of credit with a bank with interest at the prime
rate. The credit line is collateralized by portfolios of consumer receivables
acquired for liquidation and contains customary financial and other covenants
that must be maintained in order for us to borrow funds. This line expires on
November 30, 2002. As of March 31, 2002, the outstanding balance under this line
of credit was approximately $4.9 million and we were in compliance with all of
the covenants under this line of credit.
In August 2001, an investment banking firm provided approximately $29.9 million
of financing in exchange for a note with interest at LIBOR plus 2% and the right
to receive 50% of subsequent collections, net of expenses, from the portfolio
collateralizing the obligation, once the note and advances by one of our
subsidiaries have been repaid. In December 2001, we purchased one-half of this
right to receive subsequent collections for $1.5 million and a third party
purchased the other one-half for $1.5 million. The note contains customary
financial covenants and other covenants. As of March 31, 2002, the outstanding
balance of the note was approximately $11.2 million and we were in compliance
with all of the covenants under this note.
In January 2002, we purchased a thirty-five percent interest in a consumer
receivable portfolio and financed the entire purchase price of $1.6 million
through a note to the seller. The note bears interest at fifteen percent. As of
March 31, 2002, the outstanding balance of the note was approximately $500,000.
Note 7: Income recognition:
We recognize income on non-performing and performing consumer receivable
portfolios, which are acquired for liquidation, using either the interest method
or cost recovery method. Upon acquisition of a portfolio of receivables,
management estimates the future anticipated cash flows and determines the
allocation of payments based upon this estimate. If management can reasonably
estimate the expected amount to be collected on a portfolio and can reasonably
determine the timing of such payments based on historic experience and other
factors, we use the interest method. If management cannot reasonably estimate
the future cash flows, we use the cost recovery method.
Under the interest method, we recognize income on the effective yield method
based on the actual cash collected during a period and future estimated cash
flows and timing of such collections and the portfolio's purchase. The estimated
future cash flows are reevaluated quarterly. Under the cost recovery method, no
income is recognized until we have 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.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Overview
Asta Funding, Inc., together with its wholly owned subsidiaries, is a
diversified consumer finance company that is engaged in the business of
acquiring, managing, servicing and recovering on non-conforming and distressed
consumer receivables. Non-conforming consumer receivables are the obligations of
individuals that have incurred credit impairment either at the time the
obligation was originated or subsequent to origination. Distressed consumer
receivables are the unpaid debts of individuals to banks, finance companies and
other credit providers. A large portion of our distressed consumer receivables
are MasterCard(R), Visa(R) and other credit card accounts which were charged-off
by the issuing banks for non-payment.
Receivables are purchased by us at a discount from their charged-off amount,
typically the aggregate unpaid balance at the time of charge-off. We purchase
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 us 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. We pursue new acquisitions on an ongoing basis by means of industry
newsletters, brokers who specialize in these assets and other professionals with
whom we have relationships.
Asta Funding, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
We also, to a lesser extent, factor commercial invoices and specialize in
providing working capital to growing companies with unique financing needs.
Typical customers are manufacturers, wholesale distributors and service
companies. We are committed to working closely with growth companies to meet
their specialized financing needs and anticipate growth in this business by
providing prompt and reliable service to our customers.
We generate revenues, earnings and cash flow primarily through the purchase and
collection of principal, interest and other payments on consumer receivables
acquired for liquidation, financed receivables 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. We use forward-looking
statements in our description of our 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. We expressly disclaim 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 our
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 or other reports filed by us with the
Securities and Exchange Commission. These factors include the following: we are
dependent on external sources of financing to fund our operations; our
substantial debt may adversely affect our ability to obtain additional funds and
increase our vulnerability to economic and business downturns; because we are a
holding company, our ability to repay our debt will depend upon the level of our
cash reserves, the distribution of funds from our subsidiaries and our ability
to obtain sufficient additional funds; we may not be able to purchase
receivables at favorable prices and are subject to competition for such
receivables; we may not be able to recover sufficient amounts on its receivables
to fund our operations; the Stern family controls Asta; government regulations
may limit our 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.
Results of operations
The three-month period ended March 31, 2002, compared to the three-month period
ended March 31, 2001
Revenues. During the three-month period ended March 31, 2002, interest income
increased $4.2 million or 68.9% to $10.3 million from $6.1 million for the
three-month period ended March 31, 2001. The increase in interest income was
primarily due to an increase in interest income earned on consumer receivables
acquired for liquidation, which resulted from an increase in the average
outstanding accounts acquired for liquidation during the period as compared to
March 31, 2001. We earned other income of $95,000 for the three months ended
March 31, 2002, as compared to $4,000 for the three-month period ended March 30,
2001. The increase in other income was due to a fee earned by us on the sale of
certain receivables during the three months ended March 31, 2002, which was
offset by a decrease in servicing fee income which was due to a decrease in the
dollar amount of contracts being serviced as a result of the discontinuation of
the purchase and sale of automobile contracts being serviced for the
three-months ended March 31, 2002, as compared to the same period in the prior
year.
General and Administrative Expenses. During the three-month period ended March
31, 2002, general and administrative expenses increased $700,000 or 58.3% to
$1.9 million from $1.2 million for the three-months ended March 31, 2001, and
represented 31.6% of total expenses for the three months ended March 31, 2002.
The increase in general and administrative expenses was primarily due to an
increase in salaries and other costs associated with an increase in consumer
receivables that were purchased during the fiscal year ended September 30, 2001
and the six months ended March 31, 2002 that were serviced internally by us
during such period, and were not being serviced by us during the same prior year
period.
Third-Party Servicing Expenses. During the three-month period ended March 31,
2002, third-party servicing expenses increased $1.7 million or 242.9% to $2.4
million from $700,000 for the three months ended March 31, 2001, and represented
39.7% of total expenses for the three months ended March 31, 2002. The increase
in third-party servicing expenses was primarily due to servicing costs on
consumer receivables that were purchased during the fiscal year ended September
30, 2001 and were not being serviced during the same prior year period.
Interest Expense. During the three-month period ended March 31, 2002, interest
expense increased $1.1 million or 445.5% to $1.4 million from $247,000, compared
to the same period in the prior year and represented 23.2% of total expenses for
the three-month period ended March 31, 2002. The increase was due to an increase
in the outstanding borrowings by us under our lines of credit and notes payable
during the three-month period ended March 31, 2002, as compared to the same
period in the prior year. The increase in borrowings was due to the increase in
acquisitions of consumer receivables acquired for liquidation during the fiscal
year ended September 30, 2001.
Asta Funding, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Provision for Credit Losses. During the three-month period ended March 31, 2002,
the provision for credit losses increased $25,000 or 8.3% to $325,000 from
$300,000 for the three-months ended March 31, 2001 and represented 5.5% of total
expenses. The increase was primarily due to an increase in the provision for
credit losses on our financed receivables which was offset by a decrease in the
provision credit losses on our automobile contracts during the three months
ended March 31, 2002, as compared to the same prior year period.
The six-month period ended March 31, 2002, compared to the six-month period
ended March 31, 2001
Revenues. During the six-month period ended March 31, 2002, interest income
increased $8.4 million or 82.4% to $18.7 million from $10.2 million for the
six-month period ended March 31, 2001. The increase in interest income was
primarily due to an increase in interest income earned on consumer receivables
acquired for liquidation, which resulted from an increase in the average
outstanding accounts acquired for liquidation as compared to March 31, 2001.The
increase in other income was due to a fee earned by us on the sale of certain
receivables during the six-months ended March 31, 2002, which was offset by a
decrease in servicing fee income which was due to a decrease in the dollar
amount of contracts being serviced as a result of the discontinuation of the
purchase and sale of automobile contracts being serviced for the six-months
ended March 31, 2002, as compared to the same period in the prior year.
General and Administrative Expenses. During the six-month period ended March 31,
2002, general and administrative expenses increased $1.0 million or 43.5% to
$3.3 million from $2.3 million for the six-months ended March 31, 2001 and
represented 31.6% of total expenses for the six-months ended March 31, 2002. The
increase in general and administrative expenses was primarily due to an increase
in salaries and other costs associated with an increase in consumer receivables
that were purchased during the fiscal year ended September 31, 2001 and six
months ended March 31, 2002 that were serviced internally by us, and were not
being serviced by us during the same prior year period.
Third-Party Servicing Expenses. During the six-month period ended March 31,
2002, third-party servicing expenses increased $4.0 million or 589.1% to $4.7
million from $679,000 for the six months ended March 31, 2001, and represented
44.7% of total expenses for the six months ended March 31, 2002. The increase in
third-party servicing expenses was primarily due to servicing costs on consumer
receivables that were purchased during the fiscal year ended September 30, 2001
and were not being serviced during the same prior year period.
Interest Expense. During the six-month period ended March 31, 2002, interest
expense increased $1.8 million or 679.2% to $2.1 million from $265,000 for the
six-month period ended March 31, 2002, compared to the same period in the prior
year and represented 19.9% of total expenses for the six-month period ended
March 31, 2002. The increase was due to an increase in the outstanding
borrowings by us under our lines of credit and notes payable during the
six-month period ended March 31, 2002, as compared to the same period in the
prior year. The increase in borrowings was due to the increase in acquisitions
of consumer receivables acquired for liquidation during the fiscal year ended
September 30, 2001.
Provision for Credit Losses. During the six-month period ended March 31, 2002,
the provision for credit losses remained the same as compared to the same period
in the prior year and represented 3.8% of total expenses.
Liquidity and Capital Resources
Our primary sources of cash from operating activities include payments on
consumer receivables acquired for liquidation, automobile contracts and payments
on finance receivables. Our primary uses of cash include our purchases of
consumer receivables acquired for liquidation and finance receivables. As of
March 31, 2002, our cash and cash equivalents decreased to $4.9 million from
$5.7 million at September 30, 2001. The decrease in cash and cash equivalents
during the six-month period ended March 31, 2002, was primarily due to an
increase in the repayment of debt during the period.
Net cash provided by operating activities was $5.8 million during the six-months
ended March 31, 2002, compared to net cash provided by operating activities of
$49,000 during the six-months ended March 31, 2001. The increase in net cash
provided by operating activities was primarily due to an increase in net income
and other liabilities and a decrease in income tax payments during the
six-months ended March 31, 2002, as compared to the same period in the prior
year. Net cash provided by investing activities was $6.3 million during the
six-months ended March 31, 2002, compared to net cash used in investing
activities of $15.3 million during the six-months ended March 31, 2001. The
increase in net cash provided by investing activities was primarily due to an
increase in collections and a decrease in the purchase price of consumer
receivables acquired for liquidation during the six-months ended March 31, 2002,
compared to the same period in the prior year. Net cash used in financing
activities was $12.9 million during the six-months ended March 31, 2002,
compared to net cash provided of $7.1 million during the six-months March 31,
2001. The increase in net cash used in financing activities was primarily due to
an overall increase in debt payments during the six-months ended March 31, 2002,
compared to the same prior year period. The increase in debt payments was due to
an increase
Asta Funding, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
in principal collections that was used to repay debt on accounts acquired for
liquidation during the six-months ended March 31, 2002, as compared to the six-
months ended March 31, 2001.
We rely significantly upon banks and other financial institutions to provide the
funds to purchase portfolios of loans. While we maintain a $20 million line of
credit with a bank, for significant portfolio purchases we arrange financing on
a transactional basis.
While we have historically been able to finance these significant purchases
outside of our line of credit, other than our $20 million line of credit, we do
not have committed loan facilities for future purchases of portfolios. As of
March 31, 2002, our outstanding debt was $16.6 million.
We have a $20 million line of credit with a bank with interest at the prime
rate. The credit line is collateralized by portfolios of consumer receivables
acquired for liquidation and contains customary financial and other covenants
that must be maintained in order for us to borrow funds. This line expires on
November 30, 2002. As of March 31, 2002, the outstanding balance under this line
of credit was approximately $4.9 million and we were in compliance with all of
the covenants under this line of credit. The outstanding balance is payable from
the cash flows of specific portfolios.
In August 2001, an investment banking firm provided approximately $29.9 million
of financing in exchange for a note with interest at LIBOR plus 2% and the right
to receive 50% of subsequent collections, net of expenses, from the portfolio
collateralizing the obligation, once the note and advances by one of our
subsidiaries have been repaid. In December 2001, we purchased one-half of this
right to receive subsequent collections for $1.5 million and a third party
purchased the other one-half for $1.5 million. The note contains customary
financial covenants and other covenants. As of March 31, 2002, the outstanding
balance of the note was approximately $11.2 million and we were in compliance
with all of the covenants under this note. The outstanding balance is payable
from the cash flows of specific portfolios.
In January 2002, we purchased a thirty-five percent interest in a consumer
receivable portfolio and financed the entire purchase price of $1.6 million
through a note to the seller. The note bears interest at fifteen percent. As of
March 31, 2002, the outstanding balance of the note was approximately $500,000.
The outstanding balance is payable from the cash flows of specific portfolios.
Our cash requirements have been and will continue to be significant. We depend
on external financing to acquire consumer receivables. During the six-months
ended March 31, 2002, we acquired consumer portfolios at a cost of approximately
$17.0 million. These acquisitions were financed under our existing line of
credit and our cash on hand.
We anticipate the funds available under our current funding agreements and
credit facility as well as funds made available by Asta Group, Incorporated, an
affiliate of ours, and cash from operations will be sufficient to satisfy the
our estimated cash requirements for at least the next 12 months. If for any
reason our 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), we may be required to
seek additional funding.
Critical Accounting Policies
We account for our investments in performing and nonperforming consumer
receivable portfolios, which are acquired for liquidation, using either the
interest method or cost recovery method. Generally, each purchase is considered
a separate portfolio of receivables and is considered as an economic investment.
Based upon the expected performance characteristics of the receivable in the
portfolio, we determine whether the portfolio should be accounted for using the
interest method or the cost recovery method. If we can reasonably estimate the
expected amount to be collected on a portfolio and we can reasonably determine
the timing of such payments based on historic experience and other factors, we
use the interest method. If we cannot reasonably estimate the future cash flows,
we use the cost recovery method.
For each portfolio, under the interest method, we recognize income on the
effective yield method based on the actual cash collected during a period and
future estimated cash flows and timing of such collections and the portfolio's
purchase. The estimated future cash flows are reevaluated quarterly.
Under the cost recovery method, we do not recognize any revenue until the
purchase price of the portfolio has been recovered.
We periodically review our portfolios for impairment based on the estimated
future cash flows. Provisions for losses are charged to operations when it is
determined that the remaining investment in the loan portfolio is greater than
the estimated future collections. We have not recorded any impairment charges
during the two years ended September 30, 2001 and the six-months ended March 31,
2002.
Asta Funding, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Supplementary Information on Accounts Acquired for Liquidation
Schedule of Accounts Acquired for Liquidation by Income Recognition Category
As of March 31, 2002
Cost Recovery Interest Method
Portfolios Portfolios
---------- ----------
Original Purchase Price $ 45,000,000 $ 95,000,000
Aggregate Managed Portfolios - 3/31/02 $999,000,000 $670,000,000
Receivable Carrying Value - 3/31/02 $ 3,000,000 $ 35,000,000
Interest Income Earned $ 2,700,000 $ 15,100,000
(for the six months ended 3/31/02)
Total cash flows $ 4,100,000 $ 36,900,000
(for the six months ended 3/31/02)
The original purchase price reflects what we paid for the receivables from 1998
through March 31, 2002. The aggregate managed portfolio balance is the aggregate
amount owed by the borrowers at March 31, 2002. We purchase consumer receivables
at substantial discounts from the face amount. We record interest income on our
receivables under either the cost recovery or interest method. The receivable
carrying value represents the current basis in the receivables after collections
and amortization of the original price.
We do not anticipate collecting the majority of the purchased principal amounts.
Accordingly, the difference between the carrying value of the portfolios and the
gross receivables is not indicative of future revenues from these accounts
acquired for liquidation. Since we purchased these accounts at significant
discounts, we anticipate collecting only a portion of the face amounts.
For the six-months ended March 31, 2002, we earned interest income of $2.7
million under the cost recovery method because we collected $2.7 million in
excess of our purchase price on certain receivable portfolios. In addition, we
earned $15.1 million of interest income under the interest method based on
actuarial computations on certain portfolios based on actual collections during
the period based on what we project to collect in future periods. During the
six-months ended March 31, 2002, we had no significant adjustments to our
projected cash flows on the portfolios in which we use the interest method.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations." SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
This statement specifies that certain acquired intangible assets in a business
combination be recognized as assets separately from goodwill and that existing
intangible assets and goodwill be evaluated for these new separation
requirements. The Company does not expect this statement to have a material
impact on the Company's consolidated financial position or results of
operations.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Amortization of goodwill, including
goodwill recorded in past business combinations, will cease upon adoption of
this statement. In addition, this statement requires that goodwill be tested for
impairment at least annually at the reporting unit level. The Company
implemented SFAS No. 142 on January 1, 2002. The Company does not expect this
statement to have a material impact on the Company's consolidated financial
position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The statement retains the previously existing accounting
requirements related to the recognition and measurement of the impairment of
long-lived assets to be held and used while expanding the measurement
requirements of long-lived assets to be
Asta Funding, Inc.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
disposed of by sale to include discontinued operations. It also expands the
previously existing reporting requirements for discontinued operations to
include a component of an entity that either has been disposed of or is
classified as held for sale. The Company implemented SFAS No. 144 on January 1,
2002. The Company does not expect this statement to have a material impact on
the Company's consolidated financial position or results of operations.
Asta Funding, Inc.
Form 10-QSB March 31, 2002
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
As of the date of this filing, we were not involved in any material
litigation in which we are a defendant. We regularly initiate legal proceedings
as a plaintiff concerning our routine collection activities.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On May 1, 2002, David S. Slackman was appointed to our Board of
Directors. Mr. Slackman has served as the President of Commerce Bank - Manhattan
Market since 2001. Prior to joining Commerce Bank, he served as an Executive
Vice President of Atlantic Bank of New York from 1994 to 2001 and a Senior Vice
President of the Dime Savings Bank of New York from 1986 to 1994.
On May 8, 2002, Martin D. Fife resigned from our Board of Directors for
personal reasons.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 (a) Amendment to Certificate of Incorporation
10.10 Asta Funding, Inc. 2002 Stock Option Plan
10.11 Servicing Agreement dated August 30, 2001, between Computer
Finance, LLC, Greenwich Capital Financial Products, Inc., Gulf State
Credit, L.L.C. and OSI Portfolio Services, Inc.
(b) Reports on Form 8-K
We did not file any Reports of Form 8-K during the three-months ended
March 31, 2002.
Asta Funding, Inc.
Form 10-QSB March 31, 2002
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: May 14, 2002 By: /s/ Gary Stern
-----------------------
Gary Stern, President, Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2002 By: /s/ Mitchell Herman
-----------------------
Mitchell Herman, Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)