-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MQO1uRNRcZQiUQ+7js1f337CjU0tRMkkP+5FxThmiGQfMm04DE8HfwdS6TC1ZR6V o0n9vzLb4RGiK0B89fbFwA== 0001125282-01-501526.txt : 20010814 0001125282-01-501526.hdr.sgml : 20010814 ACCESSION NUMBER: 0001125282-01-501526 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASTA FUNDING INC CENTRAL INDEX KEY: 0001001258 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 223388607 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26906 FILM NUMBER: 1706072 BUSINESS ADDRESS: STREET 1: 210 SYLVAN AVE CITY: ENGLEWOOD CLIFFS STATE: NJ ZIP: 07632 BUSINESS PHONE: 2015675648 MAIL ADDRESS: STREET 1: 210 SYLVAN AVE CITY: ENGLEWOOD CLIFFS STATE: NJ ZIP: 07632 10QSB 1 b313054_10qsb.txt QUARTERLY REPORT 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 June 30, 2001. 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 of (IRS Employer incorporation or organization) Identification No.) 210 Sylvan Ave., Englewood Cliffs, New Jersey 07632 --------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Issuer's telephone number: (201) 567-5648 Former name, former address and former fiscal year, if changed since last report: N/A State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of August 9, 2001, the registrant had approximately 3,968,000 common shares outstanding. Transitional Small Business Disclosure Format (check one): Yes No X --- --- Asta Funding, Inc. Form 10-QSB June 30, 2001 INDEX Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2001 (unaudited) and September 30, 2000 Consolidated Statements of Operations for the three and nine-month periods ended June 30, 2001 and 2000 (unaudited) Consolidated Statements of Cash Flows for the nine-month periods ended June 30, 2001 and 2000 (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 Part I - FINANCIAL INFORMATION Item 1. Financial Statements Asta Funding, Inc. and Subsidiaries Consolidated Balance Sheets
June 30, September 30, ----------- ------------- 2001 2000 ---- ---- Unaudited Assets Cash $ 7,648,000 $10,488,000 Restricted cash, net 51,000 51,000 Consumer receivables acquired for liquidation, net 16,423,000 4,367,000 Finance receivables, net 2,567,000 612,000 Note receivable -- 250,000 Auto loans receivable, net 1,207,000 3,190,000 Furniture and equipment, net 158,000 156,000 Repossessed automobiles, net 133,000 181,000 Other assets 88,000 269,000 Deferred income taxes 1,220,000 1,620,000 ----------- ----------- Total assets $29,495,000 $21,184,000 =========== =========== Liabilities and Stockholders' Equity Liabilities Other Liabilities $ 2,036,000 $ 2,133,000 Advances under lines of credit 5,580,000 -- Notes payable 1,198,000 -- Income taxes payable 85,000 4,277,000 Due to affiliate 221,000 816,000 ----------- ----------- Total liabilities 9,120,000 7,226,000 ----------- ----------- Stockholders' Equity Common stock, $.01 par value; authorized 10,000,000 shares; issued and outstanding 3,968,000 shares in 2001 and 3,958,000 in 2000 . 40,000 40,000 Additional paid-in capital 9,636,000 9,619,000 Retained earnings 10,699,000 4,299,000 ----------- ----------- Total stockholders' equity 20,375,000 13,958,000 ----------- ----------- Total liabilities and stockholders' equity $29,495,000 $21,184,000 =========== ===========
See accompanying notes to consolidated financial statements Asta Funding, Inc. and Subsidiaries Consolidated Statements of Operations Unaudited
Three Months Ended Nine Months Ended June 30, June 30, ------------------------------- ------------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenues: Interest $ 6,717,000 $ 3,819,000 $16,957,000 $12,230,000 Servicing fees 3,000 15,000 13,000 61,000 ----------- ----------- ----------- ----------- 6,720,000 3,834,000 16,970,000 12,291,000 ----------- ----------- ----------- ----------- Expenses: General and administrative 2,416,000 1,099,000 5,376,000 2,907,000 Provision for credit losses and repurchases 50,000 55,000 450,000 2,090,000 Interest 184,000 63,000 449,000 387,000 ----------- ----------- ----------- ----------- 2,650,000 1,217,000 6,275,000 5,384,000 ----------- ----------- ----------- ----------- Income before income taxes 4,070,000 2,617,000 10,695,000 6,907,000 Income tax expense 1,635,000 1,046,000 4,295,000 2,762,000 ----------- ----------- ----------- ----------- Net income $ 2,435,000 $ 1,571,000 $ 6,400,000 $ 4,145,000 =========== =========== =========== =========== Net income per share - Basic $ 0.61 $ 0.40 $ 1.61 $ 1.05 ----------- ----------- ----------- ----------- - Diluted $ 0.58 $ 0.39 $ 1.55 $ 1.03 ----------- ----------- ----------- ----------- Weighted average number of shares outstanding - Basic 3,968,000 3,945,000 3,968,000 3,945,000 ----------- ----------- ----------- ----------- - Diluted 4,214,000 4,063,000 4,124,000 4,025,000 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements Asta Funding, Inc. and Subsidiaries Consolidated Statements of Cash Flows Unaudited
Nine Months Ended June 30, --------------------------------- 2001 2000 ---- ---- Cash flows from operating activities: Net income $ 6,400,000 $ 4,145,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 90,000 76,000 Provision for losses and repurchases 450,000 2,090,000 Deferred income taxes 400,000 290,000 Expenses advanced by affiliate -- 15,000 Changes in: Restricted cash -- (2,000) Repossessed automobiles held for sale 48,000 205,000 Other assets 181,000 (933,000) Income taxes payable (4,192,000) 1,411,000 Accounts payable and accrued expenses (97,000) 2,094,000 ------------ ------------ Net cash provided by operating activities 3,280,000 9,391,000 Cash flows from investing activities: Auto loan principal payments 1,876,000 3,716,000 Purchase of consumer receivables acquired for liquidation (30,164,000) (1,582,000) Principal collected on receivables acquired for liquidation, net 18,108,000 11,173,000 Finance receivables (2,030,000) -- Capital expenditures (93,000) (111,000) ------------ ------------ Net cash (used in) provided by investing activities (12,303,000) 13,196,000 Cash flows from financing activities: Advances from affiliate (595,000) (1,449,000) Advances (repayments) under lines of credit 5,580,000 (5,422,000) Advances (repayments) of notes payable 1,198,000 (10,636,000) ------------ ------------ Net cash provided by (used in) financing activities 6,183,000 (17,507,000) ------------ ------------ (Decrease) increase in cash (2,840,000) 5,080,000 Cash at the beginning of period 10,488,000 780,000 ------------ ------------ Cash at end of period $ 7,648,000 $ 5,860,000 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period Interest $ 440,000 $ 387,000 Income taxes $ 5,790,000 $ 1,045,000
See accompanying notes to consolidated financial statements 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 and performing consumer receivables. Distressed and performing consumer receivables are the unpaid debts of individuals to banks, finance companies and other credit providers. The Company's receivables consist of MasterCard and Visa credit card accounts which were charged-off by the issuing banks for non-payment and installment receivables that were originated and previously serviced by a furniture retailer. 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. In March 2000, the Company formed Asta Commercial, LLC, a wholly owned subsidiary of the Company, to factor commercial invoices. Asta Commercial specializes in providing working capital to growing companies with unique financing needs. Asta Commercial provides asset-based lending, primarily secured by accounts receivable for small growing companies. Typical customers are manufacturers, wholesale distributors and service companies. Asta Commercial is committed to working closely with growth companies to meet their specialized financing needs and anticipates significant growth in this business by providing prompt and reliable service to its customers. The consolidated balance sheet as of June 30, 2001, the consolidated statements of operations for the three and nine-month periods ended June 30, 2001 and 2000, and the consolidated statements of cash flows for the three and nine-month periods ended June 30, 2001 and 2000, 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 June 30, 2001 and September 30, 2000, the results of operations for the three and nine-month periods ended June 30, 2001 and 2000 and the cash flows for the nine-month periods ended June 30, 2001 and 2000 have been made. The results of operations for the three and nine- month periods ended June 30, 2001 and 2000 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. The Company suggests that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the fiscal year ended September 30, 2000. 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: 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. The Company discontinued purchasing contracts in May 1999. 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: Finance Receivables: Finance receivables are factored accounts receivable primarily with full recourse. Asta Funding, Inc. Notes to Consolidated Financial Statements Note 6: Income recognition: The Company recognizes income on distressed and performing 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. 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 and performing consumer receivables. Distressed and performing consumer receivables are the unpaid debts of individuals that are owed to banks, finance companies and other credit providers. The Company's receivables consist of MasterCard and Visa credit card accounts which were charged-off by the issuing banks for non-payment and installment receivables that were originated and previously serviced by a furniture retailer. 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 with whom the Company has relationships. The Company also factors commercial invoices and specializes in providing working capital to growing companies with unique financing needs. The Company provides asset-based lending, primarily secured by accounts receivable for small growing companies. Typical customers are manufacturers, wholesale distributors and service companies. The Company is committed to working closely with growth companies to meet their specialized financing needs and anticipates significant growth in this business by providing prompt and reliable service to its customers. The Company generates its 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. 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 or other reports filed by the Company with the Securities and Exchange Commission. 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. Asta Funding, Inc. Item 2. 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 figures are approximations. Results of operations The three-month period ended June 30, 2001, compared to the three-month period ended June 30, 2000 Revenues. During the three-month period ended June 30, 2001, interest income increased $2.9 million or 75.9% to $6.7 million from $3.8 million for the three-month period ended June 30, 2000. The increase in interest income was primarily due to an increase in interest income earned on consumer receivables acquired for liquidation that were purchased in January 2001, that were not being serviced during the same period in the prior year. The Company earned servicing fees of $3,000 for the three months ended June 30, 2001, as compared to $15,000 for the three-month period ended June 30, 2000. The decrease in servicing fee income is due to a decrease in the dollar amount of contracts being serviced for the three-months ended June 30, 2001, as compared to the same period in the prior year, as a result of the discontinuation of the purchase and sale of automobile contracts being serviced. Expenses. During the three-month period ended June 30, 2001, general and administrative expenses increased $1.3 million or 120.1% to $2.4 million from $1.1 million for the three-months ended June 30, 2000 and represented 91.2% of total expenses. The increase in general and administrative expenses was primarily due to servicing costs on consumer receivables that were purchased in January 2001, and increased servicing costs on consumer receivables purchased in prior periods. In addition, a portion of the increase was due to operating expenses incurred in the Company's commercial finance receivable business during the three-month ended June 30, 2001, which were lower during the same prior year period. Interest expense increased $121,000 or 192.1% to $184,000 from $63,000 for the three-month period ended June 30, 2001, compared to the same period in the prior year and represented 6.9% of total expenses for the three-month period ended June 30, 2001. The increase was due to an increase in the outstanding borrowings by the Company under the lines of credit and notes payable during the three-month period ended June 30, 2001, as compared to the same period in the prior year. The increase in borrowings was due to the Company's increases in acquisitions of consumer receivables acquired for liquidation and finance receivables during the three-month period ended June 30, 2001, as compared to the same prior year period. During the three-month period ended June 30, 2001, the provision for credit losses decreased $5,000 or 9.1% to $50,000 from $55,000 for the three-months ended June 30, 2000 and represented 1.9% of total expenses. The decrease was primarily due to a decrease in the provision for credit losses on the Company's liquidating auto receivable portfolio during the three months ended June 30, 2001, as compared to the same prior year period. The nine-month period ended June 30, 2001, compared to the nine-month period ended June 30, 2000 Revenues. During the nine-month period ended June 30, 2001, interest income increased $4.7 million or 38.7% to $16.9 million from $12.2 million for the nine-month period ended June 30, 2000. The increase in interest income is primarily due to an increase in interest income earned on consumer receivables that were acquired in January 2001 and an increase during the nine months ended June 30, 2001 in interest income on consumer receivables which are accounted for using the cost recovery method subsequent to recovery of the purchase price. The Company earned servicing fees of $13,000 for the nine-months ended June 30, 2001, as compared to $63,000 for the nine-month period ended June 30, 2000. The decrease in servicing fee income was due to a decrease in the dollar amount of contracts being serviced for the nine-months ended June 30, 2001, as compared to the same period in the prior year, as a result of the discontinuation of the purchase and sale of automobile contracts being serviced. Expenses. During the nine-month period ended June 30, 2001, general and administrative expenses increased $2.5 million or 84.9% to $5.4 million from $2.9 million for the nine-months ended June 30, 2000 and represented 85.6% of total expenses. The increase in general and administrative expenses was primarily due to servicing costs on consumer receivables that were purchased in January 2001, that were not being serviced during the same prior year period and increased servicing costs on consumer receivables that were purchased in prior periods. In addition, a portion of the increase is due to operating expenses incurred in the Company's commercial finance receivable business during the nine-month period ended June 30, 2001, which was not operating during the same prior year period. Asta Funding, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Interest expense increased $62,000 or 16.0% to $449,000 from $387,000 for the nine-month period ended June 30, 2001, compared to the same period in the prior year and represented 7.2% of total expenses for the nine-month period ended June 30, 2001. The increase was due to an increase in the outstanding borrowings by the Company under the lines of credit and notes payable during the nine-month period ended June 30, 2001, as compared to the same period in the prior year. During the nine-month period ended June 30, 2001, the provision for credit losses decreased $1.6 million or 78.5% to 0.5 million from $2.1 million for the nine-months ended June 30, 2001 and represented 7.2% of total expenses. The decrease was primarily due to the Company providing $1.5 million during the nine-month period ended June 30, 2001, for potential obligations on consumer receivables acquired for liquidation sold to others. Liquidity and Capital Needs The Company's primary sources of cash from operating activities include borrower payments on consumer receivables acquired for liquidation, automobile contracts and payments on finance receivables. The Company's primary uses of cash include its purchases of consumer receivables acquired for liquidation and finance receivables. As of June 30, 2001, the Company's cash and cash equivalents decreased to $7,648,000 from $10,488,000 at September 30, 2000. The decrease in cash was primarily due to the consumer receivables purchased and income tax payments made during the nine-months ended June 30, 2001. Net cash provided by operating activities was $3.3 million during the nine-months ended June 30, 2001, compared to net cash provided by operating activities of $9.4 million during the nine-months ended June 30, 2000. The decrease in net cash provided by operating activities was primarily due to the increase in income tax payments and accounts payable during the nine-months ended June 30, 2001, as compared to the same period in the prior year. Net cash used in investing activities was $12.3 million during the nine-months ended June 30, 2001, compared to net cash provided by investing activities of $13.2 million during the nine-months ended June 30, 2000. The increase in net cash used in investing activities was primarily due to the acquisition of consumer receivables acquired for liquidation and the increase in finance receivables during the nine-months ended June 30, 2001, compared to the same period in the prior year. Net cash provided by financing activities was $6.2 million during the nine-months ended June 30, 2001, compared to net cash used of $17.5 million during the nine-months June 30, 2000. The increase in net cash provided by financing activities was primarily due to an increase in borrowings during the nine-months ended June 30, 2001, compared to borrowing repayments during the same period in the prior year as a result of acquisitions of consumer receivables during the nine months ended June 30, 2001. The Company's cash requirements have been and will continue to be significant. The Company depends on external financing for purchasing consumer receivables. On January 29, 2001, the Company purchased approximately $100 million of consumer receivables from Heilig-Meyers Furniture Company at a substantial discount and intends to liquidate the receivables. The receivables are performing and semi-performing in nature. In conjunction with this transaction, the Company borrowed $17 million from two banks and $1 million from an affiliate of the Company. The loan from a bank for $10 million and a $1 million loan from an affiliate of the Company are payable on demand and a $7 million loan from another bank was paid in July 2001, and is payable in equal monthly installments. The interest rates on these borrowings are between one percent over prime and thirteen percent per annum. In June 2001, the Company purchased two consumer receivable portfolios. One portfolio was performing and semi-performing in nature and the other portfolio was previously charged-off by the seller and was a distressed portfolio. Both acquisitions were financed under the Company's existing line of credit. 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. Asta Funding, Inc. Form 10-QSB June 30, 2001 Part II. OTHER INFORMATION Item 1. Legal Proceedings As of the date of this filing, the Company was not involved in any material litigation in which it is the defendant. The Company regularly initiates legal proceedings as a plaintiff concerning its routine collection activities. Item 5. Other Information None. . Item 6. Exhibits and Reports on Form 8-K None. Asta Funding, Inc. Form 10-QSB June 30, 2001 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: August 9, 2001 By: /s/ Gary Stern ---------------------------------------------- Gary Stern, President, Chief Executive Officer (Principal Executive Officer) Date: August 9, 2001 By: /s/ Mitchell Herman ---------------------------------------- Mitchell Herman, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----